WEBVTT - BMO's Jennifer Lee Talks Tariffs, Immigration

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<v Speaker 1>Bloomberg Audio Studios, podcasts, radio news.

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<v Speaker 2>Jennifer Lee joins us. She's a senior Congress She's a

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<v Speaker 2>managing director at BEMO Capital Markets. Jennifer, as we think

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<v Speaker 2>about twenty twenty five, I'm not even sure where to start,

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<v Speaker 2>I mean, let's just start. We've got a new administration

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<v Speaker 2>coming in in the United States, We've got a new

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<v Speaker 2>Congress about to be seated in the new year.

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<v Speaker 1>What do you.

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<v Speaker 2>Expect from again the new sheriff in town. From an

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<v Speaker 2>economic perspective, I don't know if it's you know, tax policy,

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<v Speaker 2>if it's if it's you know, tariffs, if it's you know,

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<v Speaker 2>changes in immigration policy. There's a lot of moving parts.

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<v Speaker 2>How does that impact your outlook for this US economy?

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<v Speaker 1>Well, good morning, Happy holidays to both, and thank you

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<v Speaker 1>very much for having me on. You know, this is

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<v Speaker 1>a it's that key word uncertainty. You know, expect the unexpected.

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<v Speaker 1>There is so much unknowns as we're heading into the

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<v Speaker 1>new year with the new Trump administration. He's already talked

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<v Speaker 1>about what he plans to do with everything that he

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<v Speaker 1>wants to do on is to do list, whether or

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<v Speaker 1>not he's going to be checking them all off on

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<v Speaker 1>day one. That would be very interesting to see. But

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<v Speaker 1>certainly tariffs are the key or is the key measure

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<v Speaker 1>that he's planning to play out to roll out. He's

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<v Speaker 1>already talking about the ten twenty percent blanket tariff on

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<v Speaker 1>all three trillion dollars worth of goods coming into the US,

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<v Speaker 1>and that will be already significant compared to what he

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<v Speaker 1>did back in twenty seventeen, which was you know, targeted

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<v Speaker 1>tariffs on about three hundred billion dollars worth of goods.

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<v Speaker 1>So this is a bigger impact. And of course twenty

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<v Speaker 1>five percent tariffs on Canada and Mexico, an extra ten

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<v Speaker 1>percent on China. Maybe this is on top of the

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<v Speaker 1>sixty percent, So I'm not sure what the figure is

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<v Speaker 1>going to be. So there's a lot of uncertainy I

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<v Speaker 1>think heading into into this new year. But terrorists is

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<v Speaker 1>certainly or certainly the key factor. Taxes, corporate tax, targeted

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<v Speaker 1>tax cuts, I think, which would be great for corporate America,

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<v Speaker 1>and of course different tax relief measures for those who

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<v Speaker 1>are you know, are reading overtime, social security, and of

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<v Speaker 1>course all those other other issues like the biggest de

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<v Speaker 1>quotation effort ever in the US, cleaning out all the

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<v Speaker 1>extra stuff that you know doesn't need to be spent.

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<v Speaker 1>That's where doage comes in. So a lot of things

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<v Speaker 1>on his to do list. But how that is going

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<v Speaker 1>to play out remains to be seen, and I think

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<v Speaker 1>this is why we're expecting a lot of uncertainty as

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<v Speaker 1>we start the new year.

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<v Speaker 3>The latest estimate for the Atlanta Fed's GDP NOW model

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<v Speaker 3>for the current fourth quarter actually above three percent Paul,

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<v Speaker 3>And of course we were talking about earlier the economic

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<v Speaker 3>growth projections. If you look at the ECFC function and

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<v Speaker 3>the terminal that can pull it up for you on

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<v Speaker 3>a quarterly as well as an annual basis. So Jennifer,

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<v Speaker 3>I'm curious because year after year, especially coming out of COVID,

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<v Speaker 3>there's so much doom and gloom even for the expectations

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<v Speaker 3>in twenty twenty three, twenty twenty four that a lot

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<v Speaker 3>of economists ended up being on the wrong side of

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<v Speaker 3>that and getting it wrong. So what are people getting

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<v Speaker 3>wrong about next year? Because I feel like once we

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<v Speaker 3>wrap up a year and look ahead, we always have

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<v Speaker 3>these kind of anticipations that never quite come to fruition

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<v Speaker 3>when you look at year out.

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<v Speaker 1>That is true, and we have been I think on

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<v Speaker 1>too low on our growth expectations. We were never in

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<v Speaker 1>the recession camp, thankfully, but we're you know, I think

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<v Speaker 1>everyone was always too low on their growth expectations. We've

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<v Speaker 1>got about about two and a quarter percent, just under

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<v Speaker 1>two and a half percent pencils in for next year.

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<v Speaker 1>Where I think where the myths has been is certainly

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<v Speaker 1>from the US consumer. The US consumer continues to be

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<v Speaker 1>the big driving force of the the broader US economy.

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<v Speaker 1>That and of course over the past few years was

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<v Speaker 1>all the business investment and government spending as well. Helped

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<v Speaker 1>with the Chips Act in the IRA that's certainly helped

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<v Speaker 1>boost the economy of the US consumer continues to surprise,

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<v Speaker 1>and we should always say, never ever underestimate the US consumer.

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<v Speaker 1>Just the last November data for personal income and spending

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<v Speaker 1>showed continuing spending. It wasn't exactly super strong, but it

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<v Speaker 1>was still spent. They were still spending. And also in

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<v Speaker 1>those areas that if things are really tough and be

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<v Speaker 1>spending on like regret, recreational goods and services, recreational vehicles,

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<v Speaker 1>that area, there's a bit of a pullback on dining out,

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<v Speaker 1>hotel stays, but overall still decent consumer spending still decent.

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<v Speaker 1>Consumer wages savings raat just over four percent is still

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<v Speaker 1>pretty decent as well. So I think that's where the

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<v Speaker 1>mistake has been. So we'll have to see how things

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<v Speaker 1>go in the coming year, just given that we are

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<v Speaker 1>expecting inflation to take higher.

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<v Speaker 2>So the dollar just in this last three months is up,

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<v Speaker 2>you know, nearly seven percent. And for the tom Kings

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<v Speaker 2>of the world that like the you know, vacation over

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<v Speaker 2>in Rome or Parish or London, it's a good thing.

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<v Speaker 2>What do you make of this strong dollar, Jennifer, So

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<v Speaker 2>the strong.

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<v Speaker 1>Dollar has been at the beginning, it was a function

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<v Speaker 1>I think of the stronger US e climbing like throughout

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<v Speaker 1>twenty twenty four. The mistake has I mean, I think

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<v Speaker 1>everyone has already underestimated the global growth as well. I

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<v Speaker 1>don't think there was one G seven country that had

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<v Speaker 1>back to back negative GDP reading, so nobody was in

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<v Speaker 1>an official recession. Things got revised a lot, which I

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<v Speaker 1>felt was very interesting. It's just on the data front.

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<v Speaker 1>But everyone ended up stronger I think than expected, especially

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<v Speaker 1>in the US, So a lot of that US dollar

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<v Speaker 1>strength was reflection of much stronger US strength relative to

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<v Speaker 1>everyone else, and now over the last few months, it's

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<v Speaker 1>been a reflection of I guess at FED expectations, at

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<v Speaker 1>least over the last few weeks, in particular, just given

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<v Speaker 1>how everyone's expecting the FED to not cut as quickly

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<v Speaker 1>as originally had anticipation, just given again incoming Tearo's potential

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<v Speaker 1>income impact on inflation, and now with the last dot

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<v Speaker 1>plot showing only fifty bases points of great cuts penciled in,

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<v Speaker 1>which by the way, I think m's sort of have

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<v Speaker 1>to take with a grain of salt. That certainly put

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<v Speaker 1>a little little new fire underneath the green back, and

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<v Speaker 1>that's been very, very difficult to make calls good calls

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<v Speaker 1>on the currency market, just given all this volatility. So

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<v Speaker 1>the FED not cutting as quickly or as much, everyone

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<v Speaker 1>else seeming to face lower growth as we're entering the

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<v Speaker 1>new year, and more rate cuts coming like from the ECB,

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<v Speaker 1>from the Bank of England, maybe not the Bake of Japan.

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<v Speaker 1>The RBA is probably going to start cutting rates in February.

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<v Speaker 1>That is going to also lower their weekend their currencies

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<v Speaker 1>and put more strengths underneath the US dollar.

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<v Speaker 3>I'm curious as the calendar flips to twenty twenty five,

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<v Speaker 3>the Fed of COURUS will have new voters. Who are

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<v Speaker 3>you keeping a close eye on for as we get

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<v Speaker 3>closer to what people are arguing debatably that neutral rate.

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<v Speaker 3>Who do you think is more of a close callumn

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<v Speaker 3>to cents here?

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<v Speaker 1>Well, you know what I think. I think I'm going

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<v Speaker 1>to go back to just to see what i think.

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<v Speaker 1>Fedhair pal is going to be the key FED policy

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<v Speaker 1>maker of course, that makes the key decisions, and he's

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<v Speaker 1>whatever he says sort of reflects I think the broader consensus.

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<v Speaker 1>So I think it's just I'm going to keep listening

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<v Speaker 1>to what the FED chair says. I mean, everyone else

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<v Speaker 1>has their own opinion, everyone has their own dots. But

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<v Speaker 1>I think ultimately it's going to be up to the

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<v Speaker 1>FED chair to make that deciding factor. So I'm just

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<v Speaker 1>going to go straight to the box and say it's

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<v Speaker 1>going to be feed schair Pal.

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<v Speaker 2>Jennifer, you're up there in Toronto. How are our good

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<v Speaker 2>friends in Canada thinking about this new administration? Maybe some

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<v Speaker 2>terroriffs because last I checked, we do a lot of

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<v Speaker 2>trading with you guys up there.

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<v Speaker 1>Yes, the US is our biggest trading partner. Seventy five

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<v Speaker 1>percent of our experts head down to the US. So

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<v Speaker 1>obviously the you know, we are we were already pretty

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<v Speaker 1>nervous because the US MCA is upFrom renegotiation in May

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<v Speaker 1>of twenty twenty six, so we already knew that there

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<v Speaker 1>is something going on on that front. And now with

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<v Speaker 1>the new threats of a twenty five percent tariff on

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<v Speaker 1>both of the US's trading partners from that deal, from

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<v Speaker 1>both Mexico and Canada obviously makes us very nervous and

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<v Speaker 1>we're going to have to see if we are going

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<v Speaker 1>to be able to do some you know, decent negotiations

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<v Speaker 1>that will hopefully, you know, soften the blow and hopefully

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<v Speaker 1>we won't see this play out even if it's you know,

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<v Speaker 1>it's also going to depend on how long if he

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<v Speaker 1>does do what he threatens, which is the twenty five

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<v Speaker 1>percent tariff on Canadian imports, how long that's going to

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<v Speaker 1>stick around for and you know, hopefully it's not going

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<v Speaker 1>to come to fruition, but they will be very bad

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<v Speaker 1>news for a Canadian economy. But we've got a two

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<v Speaker 1>percent penciled in for Canadian GDP growth this year or

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<v Speaker 1>for next year at least. Ray kusers still have had

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<v Speaker 1>a good impact, but all that could be erased if

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<v Speaker 1>we do see a blanket twenty five percent tear up

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<v Speaker 1>on all Canadian imports.

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<v Speaker 2>All right, we'll stay on top of that for everyone. Jenniferly,

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<v Speaker 2>Senior e comress Managing director at Bimal Capital Markets. You

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<v Speaker 2>appreciate getting some of your time