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Speaker 2: This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferrow, along
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Speaker 2: with stocks rising ahead of CPI data and better than
Speaker 2: expected results from both JP Morgan and from Wales Farco.
Speaker 2: Joining us now to discuss is Ken Leon of cfra Ken.
Speaker 2: You've had about fifteen minutes to pour over those numbers.
Speaker 2: What do you make of them?
Speaker 3: Well, it's great.
Speaker 4: So we had outsize games for these stocks last year,
Speaker 4: and what the results speak to is the ability.
Speaker 3: To earn into your evaluation.
Speaker 4: I would expect the street is going to have upward
Speaker 4: earnings revisions for twenty twenty five. Take a look at
Speaker 4: twenty twenty six, as noted here, what's the delta for
Speaker 4: driving that earnings and that's about really for JP Morgan.
Speaker 4: First would really be net interest income, so it's not
Speaker 4: just rates as noted here, but it's also volume what
Speaker 4: speaks to the US economy growing about two and a
Speaker 4: half percent. Those two flywheels drives net interest income, which
Speaker 4: is significant for JP.
Speaker 3: Morgan and other banks.
Speaker 4: The other delta that we haven't spoken about is investment banking,
Speaker 4: and it might start slow, but the ability of a
Speaker 4: risk on environment for mergers and acquisitions and also equity
Speaker 4: underwriting means that we're going to be moving further up
Speaker 4: from the trough of the market or the cycle about
Speaker 4: eighteen months ago. Additionally, when you look at again net
Speaker 4: interest income, but JP Morgan is a diversified bank, so
Speaker 4: it's getting that from many different types of services.
Speaker 3: The only negative.
Speaker 4: Here in the print was really community banks a little
Speaker 4: bit slower in terms of their net revenue. But mostly
Speaker 4: this is a monolithic global bank, well placed trading at
Speaker 4: an expensive valuation. Our takeaway is stay the course and
Speaker 4: they're going to grow into their earnings and valuation.
Speaker 5: Ken another figure, fourth quarter provisions for credit losses came
Speaker 5: in at two point six billion. The estimate was higher
Speaker 5: at just over three billion. Similar story for Wells, a
Speaker 5: lower number than expected to What does that say to
Speaker 5: you about credit quality? Are we in a period or
Speaker 5: at least getting very close to normalization?
Speaker 3: Yeah?
Speaker 4: For JP Murray, then the industry, so bank analysts are
Speaker 4: a nervous lot, and the concern is always on credit
Speaker 4: risk and major write offs. And so far the economy
Speaker 4: is resilient. We're nowhere near an amber or red alert
Speaker 4: in terms of significant need for build up of credit reserves.
Speaker 3: Looks like we're going to have a pretty good year
Speaker 3: for the economy.
Speaker 4: And when you look at the consumer, certainly, as you
Speaker 4: do see increases in allowance for bad debt, it's mostly
Speaker 4: because the volumes are much higher today.
Speaker 3: Than they were two or three years ago.
Speaker 4: Ultimately, and we didn't speak about this, which is whether
Speaker 4: it's on credit risk or on trading. Is that black
Speaker 4: Swan event? So Jamie Diamond mentions geopolitical arrests. The third
Speaker 4: I would ask, is some liquidity squeeze in a complex
Speaker 4: trading product that upsets the market and maybe the bank stocks.
Speaker 4: We haven't seen it here, you know, if you go
Speaker 4: back in twenty twenty three, that was credit.
Speaker 2: Swiss Ken thirty minutes ago, I asked you what's your
Speaker 2: favorite what kind of business do you want to warn?
Speaker 2: And you were loving Goldman Sex. Do you love them
Speaker 2: a little bit more after those numbers?
Speaker 4: We do, and I think there's a more dynamic story
Speaker 4: here for Goldman. They'll under promise and over deliver. I
Speaker 4: think through most of twenty twenty five, traditional businesses are
Speaker 4: going to get the benefits of positive trend M and A.
Speaker 4: Of course, with one trillion of private equity investments that
Speaker 4: have to be monetized in the next twenty four months,
Speaker 4: CEO confidences coming up, we're also seeing what higher equity
Speaker 4: marketing values great trading. But John, the story is, and
Speaker 4: if I was Goldman Management, I'd be talking about their
Speaker 4: really pivot to having durable, recurring fee revenue businesses across
Speaker 4: that would be an asset in wealth management.
Speaker 3: They're large businesses.
Speaker 4: And then also as we see the easing of regulation
Speaker 4: in Washington, you're going to see Goldman be more of
Speaker 4: a principal actor besides just an agent for transactions, and
Speaker 4: what that means is getting to be more of a
Speaker 4: participant in direct private equity and private credit. We saw
Speaker 4: that as part of their announcement earlier in the week
Speaker 4: of blending some of these businesses so that they can
Speaker 4: partner or compete with Apollo and others.
Speaker 5: It is a different model can because for most of
Speaker 5: the big banks, the way that they've been approaching private
Speaker 5: credit is partnerships. Goldman with that announcement, to your point,
Speaker 5: shows that they can compete with some of the big
Speaker 5: names which are the model for the banking sector. Do
Speaker 5: you think we'll ultimately win out?
Speaker 4: That's who you are, But I think Goldman can play
Speaker 4: often so they can certainly, as I said, be principal
Speaker 4: and compete, but also for asset back loans, they can
Speaker 4: also be there to also provide funding for the private
Speaker 4: equity firms. The traditional banks have a different game, particularly
Speaker 4: regionals or mid size you know, which is really loans
Speaker 4: or syndicate loans, competing against a corporate who wants to
Speaker 4: just get immediate attention with a direct borrowing from a
Speaker 4: private equity firm. And it's a sea change because it's
Speaker 4: moving up in size of the deals from small mid
Speaker 4: mid sized companies to much larger deals over a billion
Speaker 4: a year trend. I think Goldman again, you have to
Speaker 4: go back over ten years. Gold you know, Goldman couldn't
Speaker 4: be competing with Blackstone and KKR because of regulation, and
Speaker 4: we're going to see a little easing of regulation, but
Speaker 4: they're going to be smart because they want to have
Speaker 4: the right strategy and execute.
Speaker 6: Ken, I want to go back to John's earlier point
Speaker 6: to Shanali, do you see any weakness in any of
Speaker 6: these earnings.
Speaker 4: The weakness is, you know, really related to any sharp
Speaker 4: change or shock in the markets that affects volume but
Speaker 4: also affects in their books exposure. And I mentioned that
Speaker 4: at the hour before, which is really the black Swan event.
Speaker 4: You know, some complex derivative product that has a ripple
Speaker 4: effect whether it happens in Asia or Europe, but it
Speaker 4: impacts Goldman generally. The other one, which Jamie Diamond speaks to,
Speaker 4: is a geopolitical event that has usually been if there's
Speaker 4: any sell off of buyer opportunity. But what we're seeing
Speaker 4: so far is confirmation that twenty twenty five stayed the course,
Speaker 4: and we're going to see I think the consensus or
Speaker 4: street analysts raise their estimates as we go.
Speaker 3: Through the year.
Speaker 2: Ken, we spoke to you about thirty minutes ago. I'm
Speaker 2: going to say this for you. You gave Goldman Saxon
Speaker 2: a plus. What does City get this morning, Well, we'll
Speaker 2: give them a bee.
Speaker 4: I haven't seen the details, but picking up from what
Speaker 4: Chinali said, the return on equity narrowing the range. You know,
Speaker 4: they took a one billion dollar restructuring charge in twenty
Speaker 4: four so the ability possibly to reduce costs or more
Speaker 4: than the street thinks might be able to help them
Speaker 4: on Roe. City is also an event driven stock. Of
Speaker 4: the large banks, they are finally this year, we hope
Speaker 4: moving to monetizing selling in Mexico Banamex, which was by
Speaker 4: far the largest consumer bank they had outside the US.
Speaker 3: That significant. It's event driven.
Speaker 4: They also have stable businesses with more transparency. That's called services.
Speaker 4: It's treasury and trade solutions, a dominant position in the
Speaker 4: corporate treasury market, and certainly they're more on the fixed
Speaker 4: income side versus equity across banking and trading.
Speaker 3: So you know, I think City is going to be fine.
Speaker 4: And they're still trading below net tangible book value, although
Speaker 4: the gap has narrowed a bit, so we need to
Speaker 4: see results improve through twenty twenty five. But I think
Speaker 4: myself and most analysts with buys think that they can execute.
Speaker 3: Jane Fraser is still on course.
Speaker 5: She's still on course. That gap maybe even narrowing more
Speaker 5: this morning with the rally still ongoing. Pre market, Ken
Speaker 5: another headline that came out is that they see their
Speaker 5: expenses for twenty twenty five slightly lower than fifty three
Speaker 5: point eight billion dollars. That is the high end of
Speaker 5: their range that they had already given to this market.
Speaker 5: Does it concern you that they aren't bringing in expenses
Speaker 5: quicker in the midst of this restructuring, Well, it ties.
Speaker 4: In with my earlier point one billion dollar restructuring. But
Speaker 4: what they're doing is reducing management layers and also realigning
Speaker 4: businesses that weren't really responsive to the markets or customers.
Speaker 3: So I think it's a.
Speaker 4: Timing issue and one where you'll see accelerated improvement perhaps
Speaker 4: in the second half of the year, but you'll see improvement,
Speaker 4: but it just doesn't happen in one or two quarters.
Speaker 2: I Ken, appreciate you time. Thanks for this morning, Ken
Speaker 2: Lee on that of CFI on City pH Seth appearing
Speaker 2: on course to win confirmation dismissing acusations of past misconduct
Speaker 2: in his Senate hearing. Secretary of State nominee Marco Rubio
Speaker 2: among those speaking on Capital Hill Lights alone this morning,
Speaker 2: then recent country nomination Scale Besson appearing on Thursday, joining
Speaker 2: us not to discuss Jennifer Flitzer of INVESTCA, Jennifer, welcome
Speaker 2: back any reason to believe that some of these nominations
Speaker 2: might be in trouble, any trouble at so well.
Speaker 1: I think what we saw yesterday is that a lot
Speaker 1: depends on these hearings, and objectively, you know, Pete Hegseth
Speaker 1: did a pretty good job and it is now.
Speaker 7: Taking him on the path to confirmation. I think he'll skate.
Speaker 1: Through the committee approval and he'll be on the floor
Speaker 1: probably sometime next week. The other more controversial of folks
Speaker 1: like Tulci.
Speaker 7: Gabbard or Robert F. Kennedy Junior.
Speaker 1: I think these hearings are really going to matter, and
Speaker 1: if they have some of the same showing as Pete
Speaker 1: Heggseth did, then I think they're well.
Speaker 7: On their way to confirmation, Jennifer.
Speaker 6: If they're going up for the hearing, though, the Trump
Speaker 6: campaign must think that they have the votes for these
Speaker 6: individuals like Tulci Gabbard and our.
Speaker 8: Well.
Speaker 7: I think they have faith in their strength right.
Speaker 1: And one thing that is sort of a through line
Speaker 1: with all of these nominees is their strong ability to communicate,
Speaker 1: their ability to message and stay on message.
Speaker 7: And I think you're going to see that with Chelsea
Speaker 7: Gabbard and with Robert F.
Speaker 1: Kennedy Junior, with patl for the FBI director. If they
Speaker 1: have strong showings that they're hearings and I think the
Speaker 1: faith there is with them from the transition.
Speaker 7: Then I think they're well on their way to confirmation.
Speaker 1: And what we're hearing behind the scenes with the meetings
Speaker 1: that are happening with the senators is that they're gaining
Speaker 1: a lot of support as they move along.
Speaker 6: It's a good point you make, because that's what sources
Speaker 6: close to Trump tell me that being able to communicate
Speaker 6: his agenda is just as important as being able to
Speaker 6: do the job that he's putting some of these nominees
Speaker 6: in place. Can you give us a sense is what's
Speaker 6: so different from Trump one point zero and how they
Speaker 6: worked with nominees and some under secretaries. So what we're
Speaker 6: seeing now are they moving faster?
Speaker 7: Now? They're definitely moving faster.
Speaker 1: I mean I think the vetting was a little slow
Speaker 1: because of how they decided to do it, and when
Speaker 1: they brought in the FBI vetting, and when they started
Speaker 1: filing with the Senate. But I think they're well with
Speaker 1: on within their way, well on the path to getting
Speaker 1: folks in immediately as soon as the president is inaugurated
Speaker 1: on day one. I do see a much sort of
Speaker 1: stronger bench in the sense of the ability of Trump
Speaker 1: and the Trump transition team and really Susie Wiles at
Speaker 1: the top there as in the chief of Staff to
Speaker 1: get folks in who are really speaking the message of
Speaker 1: Trump and Trump two point zero. I think in one
Speaker 1: point oh, you saw sort of, you know, the mechanism
Speaker 1: in Washington.
Speaker 7: Really working to influence Trump.
Speaker 1: Now, Trump has a very strong position and has a
Speaker 1: whole team of folks who are there to push that position,
Speaker 1: to push that agenda.
Speaker 5: Beyond just the ability to get these various cabinet members
Speaker 5: confirm Jennifer. Does it also speak to a cohesion within
Speaker 5: the Republican Party that will benefit Trump as he tries
Speaker 5: to do things like past one big beautiful bill in
Speaker 5: a very slim majority. Does it help that these are
Speaker 5: getting through? Does it speak to that ability?
Speaker 8: Yeah?
Speaker 1: Absolutely, And I think we've seen it just in this
Speaker 1: transition period.
Speaker 7: Mar A Lago is a very.
Speaker 1: Busy place right now, and not just with CEOs from
Speaker 1: the tech industry.
Speaker 7: You see Washington basically flying down to mar A Lago.
Speaker 1: He has been entertaining members of Congress, senators and Tiger
Speaker 1: caucuses and factions of the House representatives. I think going forward,
Speaker 1: especially within this first six months, you're going to see
Speaker 1: a very hands on White House working their agenda and
Speaker 1: working with the members within the House who might be
Speaker 1: the most difficult to get on board.
Speaker 2: Jennifer, appreciate your time. Jennifer Flitten of Investco. David Kelly's
Speaker 2: with us around of TYPEO with David Kelly of JP
Speaker 2: markin Asset Management, David Mornick get to see you morning.
Speaker 2: You expected to see more of this softer inflation prints
Speaker 2: in a monthst ahead, Yes, I do.
Speaker 9: I think the I think it's important to recognize that
Speaker 9: the year of year, which is kind of high right
Speaker 9: now at two point nine, that's going to look a
Speaker 9: lot better by April because the first four months of
Speaker 9: last year we saw pretty strong inflation, so that that
Speaker 9: makes it very easy to get down to a low
Speaker 9: twos by April. And overall, this is not an inflation
Speaker 9: prone economy. I mean, the economy left to itself is
Speaker 9: just chugging along, steady growth at over two percent growth,
Speaker 9: unemployment very steady, and inflation grad coming down.
Speaker 8: So the economy itself looks pretty good right now.
Speaker 9: It's got a lot coming up on the plate.
Speaker 8: Here, but overall feel pretty good about.
Speaker 2: We'll talk about what's coming up on a play, and
Speaker 2: I've seen you're talking about incoming policy changes. Potentially you've
Speaker 2: written about this sources of inflation, labor, energy, goods, and services.
Speaker 2: Where'd you have the most confidence?
Speaker 8: Now?
Speaker 9: I think the most important is the labor market, and
Speaker 9: I think what we've seen is American workers just won't
Speaker 9: ask for race. It's remarkable. I mean, we saw production
Speaker 9: on supervisory workers, wages up three point eight percent year
Speaker 9: over year.
Speaker 8: We've got eight million job openings.
Speaker 9: Everybody knows it's hard to find a good employee, but
Speaker 9: yet quits rates are below.
Speaker 8: Where they were before the pandemic.
Speaker 9: And either American business is great at saying why they're
Speaker 9: not going to give people a raise, or American workers
Speaker 9: are just won't be about asking for one.
Speaker 8: But whatever way it works, we're just.
Speaker 9: Not getting inflation coming out of the labor market, and
Speaker 9: without that you cannot get sustained inflation.
Speaker 5: Just to that point on the labor market, as we're
Speaker 5: digesting CPI, you have had these individual announcements from companies,
Speaker 5: be it from Meta, Microsoft, Southwest City, when it comes
Speaker 5: to benefits about reducing hiring, not hiring, or even letting
Speaker 5: people go do some of that softness. Do you look
Speaker 5: at that and say these are idiosyncratic company events or
Speaker 5: does it suggest that something has indeed shifted in the
Speaker 5: labor market in terms of who has the power and
Speaker 5: overall represents some form of softness.
Speaker 9: I think it's good messaging for these companies. There's nothing
Speaker 9: there's nothing like announcing perspective layoffs to quieten down the
Speaker 9: labor force. So I think it's a way of really
Speaker 9: suppressing wage gains. There's no evidence in GDP. I mean,
Speaker 9: you know, if you want to figure out where employment's going,
Speaker 9: look at where GDP has been. Because the last four quarters,
Speaker 9: the current quarter, in the previous three quarters are a
Speaker 9: very good.
Speaker 8: Driver payroll employment.
Speaker 9: So I know that the rate of growth of this
Speaker 9: economy is capable of generating on hundred and fifty one
Speaker 9: hundred and seventy five thousand jobs per month as an
Speaker 9: average through this year, and that forecast is good for
Speaker 9: at least the next three to six months anyway. So
Speaker 9: there really isn't any softness in terms of the overall economy.
Speaker 9: But business, you know, they focus on margins, they focus
Speaker 9: on efficiencies.
Speaker 8: You know, how can we be more productive?
Speaker 9: And yes, if that means announcing well, I'm going to
Speaker 9: have to lay off a few people, then that that.
Speaker 8: Actually works in terms of maintaining cost control.
Speaker 6: David John mentioned energy and that was a big part
Speaker 6: of this inflation story for this print forty percent. I
Speaker 6: believe IA Overnight was saying, actually they see a smaller
Speaker 6: glut next year. How concerned you that fighting energy prices,
Speaker 6: higher oil prices, higher grass lean price is going to
Speaker 6: be a concern for twenty twenty five?
Speaker 8: Not too much.
Speaker 9: I mean, if you look at the global composite PMI index,
Speaker 9: you've got a global economy that is kind of muddling forward.
Speaker 9: The US is doing very well in places like India
Speaker 9: and Italy are doing well, but a lot of Europe
Speaker 9: and particularly China are pretty soft here that's not going
Speaker 9: to generate a lot of demand. Meanwhile, I think with
Speaker 9: the change in administration, you could get two things. One,
Speaker 9: you may get a peace settlement in the Middle East,
Speaker 9: which could you know, DAP and down tensions a little
Speaker 9: bit and con turns. And then secondly you're going to
Speaker 9: have a very pro drilling policy which could increase US production,
Speaker 9: and some deregulation.
Speaker 8: Which could help the energy sector.
Speaker 9: So overall, I don't think energy prices for fossil fuels
Speaker 9: are likely to go up significantly over the next few years.
Speaker 2: If you are just joining us, welcome to the program.
Speaker 2: Seven minutes ago, inflation data drops and came in a
Speaker 2: little bit better than expected on core CPI excluding food
Speaker 2: and energy month over month, coming in at zero point
Speaker 2: two percent the median estimate in our survey with zero
Speaker 2: point three on headline inline at zero point four percent
Speaker 2: the estimate with zero point four. Of course, we're trading
Speaker 2: off the back of that downside surprise on core CPI,
Speaker 2: and it's unlocking much lower bond yards across the curve.
Speaker 2: The ten year is now lower by ten basis points,
Speaker 2: the two year down by nine. That unlocks some dollar
Speaker 2: weakness and euro strength. Euro dollar at one oh three forty,
Speaker 2: and equities a really big lift of stocks on the
Speaker 2: s and p up by one point four percent. Likewise,
Speaker 2: on the Nasdaq and on the Russle, the small caps
Speaker 2: are absolutely flying this morning. On Russell, we are rallying
Speaker 2: pretty hard going into the up and about up by
Speaker 2: two point nine percent. David, you talked about the incoming administration.
Speaker 2: Danny talked about this earlier, the cost of not making
Speaker 2: your plans clear. You think it's high yields, it's that
Speaker 2: what's playing out in the bond market, not this morning,
Speaker 2: but leading up to this move.
Speaker 9: Oh yeah, yes, absolutely, because we don't know how far
Speaker 9: we can push the global bond market. And on Friday
Speaker 9: we're going to get some new numbers from the Congression
Speaker 9: Budget Office looking at you know, if we don't do
Speaker 9: any tax cuts from here, if we don't even extend
Speaker 9: the tax cuts we've got still, I think they'll still
Speaker 9: show the debt to GDP ratio rising to about one
Speaker 9: hundred and twenty two hundred and twenty five percent of
Speaker 9: GDP by by twenty thirty five. It looks like that
Speaker 9: the budget deficit for this year could come in as
Speaker 9: over two trillion dollars, and half of that is interest,
Speaker 9: and these higher interest costs that we're seeing it's a
Speaker 9: negative feedback loop because it's actually pushing.
Speaker 8: Up the deficit.
Speaker 9: And the question is, well, how much can the government
Speaker 9: borrow from global capital markets at very cheap rates.
Speaker 6: You said in your note the most dangerous three were
Speaker 6: and economics are quote wait and see. What do you
Speaker 6: do that in this environment where Trump wants to be unpredictable.
Speaker 8: That's part of the policy. Yeah, and it doesn't it works.
Speaker 9: You know, it works well in football, it works well
Speaker 9: in military maneuvers.
Speaker 8: It does not work.
Speaker 9: Work well in macroeconomic management.
Speaker 8: You actually have to let people know.
Speaker 9: I mean, that's why the fence spends so much time
Speaker 9: saying we're looking for two percent inflation and just tries
Speaker 9: to telegraph their punches all the time. And that's really
Speaker 9: what what you should do in macroeconomic management. So yes,
Speaker 9: I think there is an uncertainty tax, absolutely, because the
Speaker 9: problem is that if you don't know what the administration
Speaker 9: is going to do in terms of taxation or deficits,
Speaker 9: you don't know where interest rates are going to be.
Speaker 9: What's the easiest thing for business to say, well, let's
Speaker 9: wait and see. And you know, whenever decides to wait
Speaker 9: and see, what they eventually see is not good, So
Speaker 9: it actually drags in the economy, slows down economic growth.
Speaker 9: So I am not concerned about the economy accelerating a
Speaker 9: lot this.
Speaker 8: Year at all.
Speaker 9: I'd be more worried about it decelerating if we have
Speaker 9: some shock or make some mistake.
Speaker 2: Sammary's point, though, this president, the incoming president, values a
Speaker 2: lack of predictability. Are you saying that's going to be
Speaker 2: a permanent feature of this bond market through this administration,
Speaker 2: a yield premium because we just won't have a clear plan.
Speaker 9: It could be, but also because we're going into uncharted
Speaker 9: territory in terms of how much we're trying to borrow
Speaker 9: from the you know, the biggest borrow in the world
Speaker 9: is going to be borrowing more than they've ever borrowed before.
Speaker 9: And it's and you know, we're at a delicate point
Speaker 9: here because.
Speaker 8: We really need to not only do we have to.
Speaker 9: Have a sensible plan in terms of revenues and spending,
Speaker 9: but we need a certain amount of predictability. If you
Speaker 9: if we sort of push through a budget plan which
Speaker 9: suddenly pushes us to a four trillion dollar deficit and
Speaker 9: everybody said, well, it's okay, We're going to grow away
Speaker 9: out of it. We're not going to grow our way
Speaker 9: out of it. I mean, we have to do some
Speaker 9: sensible budgeting here. And yes, I do think that could
Speaker 9: push up long term interst rates. And as I say,
Speaker 9: it's a feedback loop because that pushes the deficit to
Speaker 9: GDP ratio up to you know, seven percent, eight percent.
Speaker 9: Those numbers make it very hard to finance this debt.
Speaker 2: It's pretty a negative psycho David, it's going to say,
Speaker 2: as always, appreciated time joint to guess Nats continue the conversation.
Speaker 2: ADITYA Bve of Bank of America Global Research. Adita, you
Speaker 2: made a code in the last week off the back
Speaker 2: of pay rolls, no more rate cuts in twenty twenty five.
Speaker 2: Does this data point this morning change things on the
Speaker 2: margin at all for you in the team?
Speaker 10: No, I don't think it changes our mind. Really, it's
Speaker 10: a good number. Zero point two percent on the core PC.
Speaker 10: We were below consensus at about twenty six basis points.
Speaker 10: This was even softer than that. But what's different this
Speaker 10: month relative to previous months is that we already have
Speaker 10: the PPI data, so we can very quickly go from
Speaker 10: reacting to CPI to then doing the read through to PCE,
Speaker 10: which is what really matters at the end of the day.
Speaker 10: And if you look over the last three four months,
Speaker 10: we're basically running it around two and a half percent,
Speaker 10: which is where the FED things will be at the
Speaker 10: end of this year for the core PC, So by
Speaker 10: the FED Zone admission, inflation is stuck around.
Speaker 8: Two and a half percent.
Speaker 10: And then also on top of that, the labor market
Speaker 10: seems to have stabilize and that was the primary reason
Speaker 10: they were cutting, so we don't see any reason for
Speaker 10: them to keep cutting now going forward.
Speaker 5: Adachin that same call you made, you also say that
Speaker 5: should core PCE come in somewhere above three percent, then
Speaker 5: we'd start talking about hikes. With this data in hand,
Speaker 5: even if it doesn't change your call when it comes
Speaker 5: to no cuts, does it at least move us further
Speaker 5: away for having to talk about hikes.
Speaker 8: I think that's fair.
Speaker 10: We were pretty upfront about the fact that the bar
Speaker 10: for hikes is still quite high, so getting to three
Speaker 10: percent is not a trivial thing, right, even setting aside
Speaker 10: this latest data print, As your previous guest mentioned, we
Speaker 10: are going to go down on the year of a
Speaker 10: year eight over the next three months most likely, because
Speaker 10: the base effects are very favorable, so I won't be
Speaker 10: surprised if we're around two and a half percent once
Speaker 10: we have the data through March. So to go from
Speaker 10: there to three percent is going to be very challenging,
Speaker 10: and it'll probably take some sort of exogenous shock which
Speaker 10: could get hikes really into the equation. But equally, our
Speaker 10: point for now is getting from there to two percent
Speaker 10: looks quite challenging, which is why we don't see a
Speaker 10: rationale for continued cuts.
Speaker 5: Is there some degree which we should look at these
Speaker 5: data points as a jumping off point point, that is
Speaker 5: to say that we are going to see inflation's true
Speaker 5: path coming forward once we pass the inauguration, once we
Speaker 5: hear different policy for Donald Trump. Is this only the
Speaker 5: beginning of something that again could be an inflationary path.
Speaker 8: It's possible. We'll really have to see.
Speaker 10: I mean, you talked a lot about policy uncertainty as
Speaker 10: well in the previous segment, and I think there is
Speaker 10: a lot of uncertainty, so we'll see how things play out.
Speaker 10: We have made it clear that we think the risks
Speaker 10: are skewed towards more inflationary policies, but nobody really knows
Speaker 10: what's actually going to happen, right, So we'll have to
Speaker 10: see how things play out. I think it is worth
Speaker 10: noting that last time around, there were a lot of
Speaker 10: expectations that tariffs would be super inflationary, but the dollar
Speaker 10: ended up absorbing a lot of the shock. There were
Speaker 10: a lot of exclusions and so on, so the tariffs
Speaker 10: didn't actually end up being that inflationary.
Speaker 8: Well, then, going to.
Speaker 6: David Kelly's point talking about this policy uncertainty and this
Speaker 6: wait and see, does this basically mean paralysis as you
Speaker 6: wait for this unpredictability because the income administration wants a
Speaker 6: lot of optionality when it comes to how are they
Speaker 6: going to enact some of these things like immigration policy
Speaker 6: and tariffs?
Speaker 8: Right, Sorry I lost you for a bit. I'm not
Speaker 8: sure what the question was.
Speaker 6: Well, are we going to have basically just economic paralysis
Speaker 6: this weight and see? And can that in itself hurt
Speaker 6: the economy?
Speaker 8: Right?
Speaker 10: So we're pretty optimistic on the trajectory of the economy.
Speaker 10: To be honest, economic paralysis isn't really our outlook. We
Speaker 10: think we're going in with significant momentum. We are above
Speaker 10: consensus on growth for this year, primarily because of structural growth, right,
Speaker 10: So we see productivity as a big driver of growth
Speaker 10: over the last couple of years. We think that can
Speaker 10: continue going forward. So we think we can grow at
Speaker 10: two point three percent this year with tariffs maybe putting
Speaker 10: some downside on growth, but then equally if we do
Speaker 10: get some fiscal stimulus, that could be the growth environment.
Speaker 2: I did you appreciate your time, sir as always did
Speaker 2: you pother there Bank for America level research off the
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