1
00:00:00,120 --> 00:00:02,840
Speaker 1: For more on the economic outlook. We're joined by Neureal Rabini,

2
00:00:02,960 --> 00:00:06,200
Speaker 1: CEO of Rabini Macro Associates, an NYU Stern School of

3
00:00:06,280 --> 00:00:09,639
Speaker 1: Business Professor Emeritis at NOREEL. It's really good to see you.

4
00:00:09,760 --> 00:00:11,959
Speaker 1: Tony Crescenzi was talking about sort of FED is in

5
00:00:12,119 --> 00:00:15,000
Speaker 1: risk management mode. Are they doing this right?

6
00:00:17,360 --> 00:00:17,520
Speaker 2: Yeah?

7
00:00:17,520 --> 00:00:20,840
Speaker 3: I would say the overall are doing it right. On

8
00:00:20,840 --> 00:00:24,320
Speaker 3: one side, they're still worried that the surgeon inflation occurre

9
00:00:24,360 --> 00:00:27,920
Speaker 3: in the first quarter may be slightly more than temporary,

10
00:00:28,160 --> 00:00:32,880
Speaker 3: even if the latest number suggests the softening of core PC.

11
00:00:33,600 --> 00:00:37,440
Speaker 3: But now there's also something of a slowdown of the economy,

12
00:00:37,640 --> 00:00:40,800
Speaker 3: something of a softening of the labor market. There is

13
00:00:40,920 --> 00:00:44,920
Speaker 3: job creation, but they unemployment rate has sticked up towards

14
00:00:44,960 --> 00:00:48,120
Speaker 3: four percent, so there is better balance and there is

15
00:00:48,159 --> 00:00:51,479
Speaker 3: a slowdown in the economy. So based on their dual mandate,

16
00:00:51,560 --> 00:00:54,960
Speaker 3: they have to worry about the inflation, worry about growth

17
00:00:55,040 --> 00:00:58,040
Speaker 3: as well. So I think they're right in waiting until

18
00:00:58,080 --> 00:00:59,240
Speaker 3: they start cutting rates.

19
00:00:59,400 --> 00:01:01,600
Speaker 1: Nourel think that the risk should be more on the

20
00:01:01,640 --> 00:01:04,479
Speaker 1: inflation side or the growth side, and that the risk

21
00:01:04,560 --> 00:01:06,720
Speaker 1: is higher inflation or lower growth, which can put you

22
00:01:06,720 --> 00:01:07,000
Speaker 1: be on.

23
00:01:08,720 --> 00:01:08,880
Speaker 2: Well.

24
00:01:08,959 --> 00:01:11,960
Speaker 3: Until recently, I would have argued that the biggest risk

25
00:01:12,080 --> 00:01:16,960
Speaker 3: was an upside on the inflation side. But now economic

26
00:01:16,959 --> 00:01:21,840
Speaker 3: growth is slightly moderated, consumption is slowing down, there is

27
00:01:21,880 --> 00:01:24,560
Speaker 3: some slackening in the labor market.

28
00:01:25,120 --> 00:01:27,080
Speaker 2: So I think that the FAED that wants to.

29
00:01:27,040 --> 00:01:30,080
Speaker 3: Achieve a soft landing, but not a softish landing.

30
00:01:30,120 --> 00:01:32,280
Speaker 2: They don't want to go to two percent with.

31
00:01:32,800 --> 00:01:36,160
Speaker 3: Even a shortened shallow accession, And therefore there's to start

32
00:01:36,240 --> 00:01:39,360
Speaker 3: thinking all about the dance this to economic growth.

33
00:01:40,240 --> 00:01:42,119
Speaker 4: Are we out of the woods yet in terms of

34
00:01:42,400 --> 00:01:44,600
Speaker 4: we can avoid a recession that most will get a

35
00:01:44,640 --> 00:01:45,560
Speaker 4: soft landing.

36
00:01:47,920 --> 00:01:49,440
Speaker 2: Yes, we want caveats.

37
00:01:49,440 --> 00:01:51,920
Speaker 3: You know, a year ago everybody worried about the real

38
00:01:52,040 --> 00:01:55,840
Speaker 3: art landing. Then there was a risk of a softish landing.

39
00:01:56,560 --> 00:01:59,320
Speaker 3: Then people said, no, we're going to achieve a soft landing.

40
00:01:59,680 --> 00:02:05,160
Speaker 3: But recently there was both growth about potential and inflation

41
00:02:05,280 --> 00:02:08,079
Speaker 3: about target. So the is was that actually the column

42
00:02:08,160 --> 00:02:10,720
Speaker 3: was growing too fast and will be in a no

43
00:02:10,880 --> 00:02:13,840
Speaker 3: landing situation, and no landing will lead the FED to

44
00:02:13,880 --> 00:02:17,240
Speaker 3: stay high for longer or even higher for longer.

45
00:02:18,520 --> 00:02:19,360
Speaker 2: That was the risk.

46
00:02:20,040 --> 00:02:22,320
Speaker 3: While I would say that right now the softening of

47
00:02:22,400 --> 00:02:26,239
Speaker 3: the Growth and Liberal Market site suggest that maybe the

48
00:02:26,360 --> 00:02:28,519
Speaker 3: risk of a no landing is a use and we're

49
00:02:28,560 --> 00:02:32,079
Speaker 3: going towards maybe something closer to the goal of the FED,

50
00:02:32,160 --> 00:02:33,240
Speaker 3: that is a soft landing.

51
00:02:34,400 --> 00:02:37,040
Speaker 4: In terms of global economic risks and what might keep

52
00:02:37,080 --> 00:02:38,640
Speaker 4: you up at night, I know that you worry about

53
00:02:38,639 --> 00:02:40,520
Speaker 4: a lot of things, and a lot probably keeps you

54
00:02:40,600 --> 00:02:43,400
Speaker 4: up at night. But globally, when you look at what's

55
00:02:43,400 --> 00:02:44,880
Speaker 4: going on in the Middle East, or when you look

56
00:02:44,919 --> 00:02:47,639
Speaker 4: at what's going on with Russia and Ukraine, what's happening

57
00:02:47,639 --> 00:02:50,400
Speaker 4: in Europe, with those elections taking place in France and

58
00:02:50,440 --> 00:02:53,960
Speaker 4: the UK or China, what is the single biggest concern

59
00:02:54,040 --> 00:02:58,480
Speaker 4: for you as it relates to how the FED proceeds well.

60
00:02:58,520 --> 00:03:01,480
Speaker 3: The biggest risk would be so some kind of geopolitical

61
00:03:01,560 --> 00:03:05,600
Speaker 3: shock they will lead to some spike either in energy

62
00:03:06,240 --> 00:03:11,519
Speaker 3: or broader commodity prices. The initial brutal Russian invasion of

63
00:03:11,600 --> 00:03:15,200
Speaker 3: Ukraine letter a spike not just in energy prices, but

64
00:03:15,320 --> 00:03:20,919
Speaker 3: also food, fertilizer, industrial metals. If there was a worsening

65
00:03:21,400 --> 00:03:24,600
Speaker 3: of the conflict between Israel and a mass and escalation

66
00:03:24,800 --> 00:03:27,880
Speaker 3: that includes as well lah An Iran, of course, there

67
00:03:27,880 --> 00:03:31,280
Speaker 3: could be a spike in all prices like the one

68
00:03:31,320 --> 00:03:36,000
Speaker 3: we saw in the stacuflationy episode of seventy three seventy nine,

69
00:03:36,680 --> 00:03:40,280
Speaker 3: and the conflict with Chinese more of a slow motion,

70
00:03:41,040 --> 00:03:43,320
Speaker 3: a build up of a Cold war is getting colder.

71
00:03:43,960 --> 00:03:46,720
Speaker 3: Risk of protection is but of course what's going to

72
00:03:46,800 --> 00:03:49,520
Speaker 3: happen on the trade side depends very much on whether

73
00:03:49,480 --> 00:03:51,960
Speaker 3: the Trump is going to be elected or by them

74
00:03:52,040 --> 00:03:55,080
Speaker 3: or some other Democrat as well. So I would say

75
00:03:55,160 --> 00:03:58,800
Speaker 3: all central banks worry about some geopolitical shock that spikes

76
00:03:58,800 --> 00:04:01,840
Speaker 3: in their energy rather commodity prices that will lead to

77
00:04:01,880 --> 00:04:05,400
Speaker 3: an increase in headwind inflation that could eventually lead to

78
00:04:05,440 --> 00:04:08,360
Speaker 3: a second round. The fact we've increase in core inflation

79
00:04:08,880 --> 00:04:12,920
Speaker 3: and the stagflation is shocked that increasing inflation reduces growth

80
00:04:13,280 --> 00:04:15,720
Speaker 3: in a way they will make really hard the goal

81
00:04:15,720 --> 00:04:17,440
Speaker 3: of central banks achieve a soft landing.

82
00:04:18,000 --> 00:04:19,960
Speaker 1: Putting aside the US election for a second, because we

83
00:04:20,000 --> 00:04:22,720
Speaker 1: will get to that. What is the risk that we

84
00:04:22,760 --> 00:04:26,599
Speaker 1: should put on the French parliamentary second round election and

85
00:04:26,640 --> 00:04:27,400
Speaker 1: the result.

86
00:04:27,120 --> 00:04:33,760
Speaker 3: Of that, well, there's certainly a risk that the Party

87
00:04:33,800 --> 00:04:39,240
Speaker 3: of Lapen reaches an absolute majority. Their physical program, the

88
00:04:39,320 --> 00:04:44,600
Speaker 3: program about Europe is really if implemented fully something will

89
00:04:44,680 --> 00:04:49,360
Speaker 3: be dangerous, not so just for France but also for Europe. However,

90
00:04:49,440 --> 00:04:52,320
Speaker 3: I feel that even if they were to come to power,

91
00:04:52,880 --> 00:04:56,599
Speaker 3: they'll be moderated. They'll be moderated because the constraints coming

92
00:04:56,640 --> 00:05:00,880
Speaker 3: from the European Union, from the ACB, There'll be in

93
00:05:00,960 --> 00:05:05,320
Speaker 3: covitation Macron and most importantly, there is market discipline. If

94
00:05:05,360 --> 00:05:08,440
Speaker 3: they were to follow a reckless fiscal policy, there'll be

95
00:05:08,480 --> 00:05:11,520
Speaker 3: a massive widening of their solveign spread that fall in

96
00:05:11,520 --> 00:05:14,080
Speaker 3: the stock market a week in the Europe that that

97
00:05:14,160 --> 00:05:17,719
Speaker 3: would force them to adjust. We know what happened in

98
00:05:17,720 --> 00:05:20,320
Speaker 3: the UK where the government bil is trust is not

99
00:05:20,480 --> 00:05:23,920
Speaker 3: survive more than forty four days when the bond which

100
00:05:24,040 --> 00:05:26,760
Speaker 3: landest came into action. So I would say the biggest

101
00:05:26,800 --> 00:05:30,920
Speaker 3: constraint to a radical economic and physcal policy in France

102
00:05:31,000 --> 00:05:34,600
Speaker 3: comes from market discipline, and that's going to lead them

103
00:05:34,600 --> 00:05:37,440
Speaker 3: probably to moderate if they come to power, if they

104
00:05:37,480 --> 00:05:40,719
Speaker 3: want to stay in power. The alternative a hand parliament

105
00:05:40,800 --> 00:05:44,040
Speaker 3: is not much better because that hand parliament implies a

106
00:05:44,160 --> 00:05:47,160
Speaker 3: minority government. One's going to be subject to a both

107
00:05:47,160 --> 00:05:51,960
Speaker 3: of non confidence eventually a caretaker government and to policy

108
00:05:52,000 --> 00:05:53,400
Speaker 3: and political CIOs as well.

109
00:05:53,640 --> 00:05:56,160
Speaker 2: So either way that risk in France.

110
00:05:56,240 --> 00:05:59,159
Speaker 3: But the thing that market discipline is going to constrain

111
00:05:59,240 --> 00:05:59,920
Speaker 3: Weather's going to.

112
00:05:59,839 --> 00:06:01,640
Speaker 2: Be in power of doing things that to.

113
00:06:01,720 --> 00:06:06,240
Speaker 4: Extreme the rise of Lapen. In the case the rise

114
00:06:06,240 --> 00:06:09,920
Speaker 4: of populist parties, are there instances where populist parties are

115
00:06:09,960 --> 00:06:12,000
Speaker 4: good for markets and for the economy.

116
00:06:14,080 --> 00:06:14,880
Speaker 2: It depends.

117
00:06:14,920 --> 00:06:18,480
Speaker 3: Some of these populist parties start from a how to say,

118
00:06:18,640 --> 00:06:23,279
Speaker 3: very populist economic agenda and then they moderate. In the

119
00:06:23,320 --> 00:06:26,760
Speaker 3: case of Italy, Meloni when she came to power, the

120
00:06:26,800 --> 00:06:29,640
Speaker 3: words that will be loose fiscal policy, that will be

121
00:06:29,720 --> 00:06:32,320
Speaker 3: a reversal of structural reform.

122
00:06:32,400 --> 00:06:33,440
Speaker 2: That did not occur.

123
00:06:33,920 --> 00:06:37,040
Speaker 3: And some do hope that Lapen can be the way

124
00:06:37,080 --> 00:06:40,960
Speaker 3: I put it to be melonized, that one power is

125
00:06:41,040 --> 00:06:44,480
Speaker 3: going to moderate. There are differences between Italy and France.

126
00:06:45,120 --> 00:06:47,240
Speaker 3: The program of Oapen is much more to the right

127
00:06:47,320 --> 00:06:50,080
Speaker 3: of the one of Meloni. Italy had the cartog of

128
00:06:50,120 --> 00:06:54,479
Speaker 3: two hundred billion euros of low cost loans or grants

129
00:06:54,520 --> 00:06:58,400
Speaker 3: from the EU, and the Druggy played the role of

130
00:06:58,880 --> 00:07:01,800
Speaker 3: how to say, paternal guidance. In the case of Melodia,

131
00:07:01,800 --> 00:07:04,320
Speaker 3: there is not the same figure in the cause of France,

132
00:07:04,720 --> 00:07:07,039
Speaker 3: so they're not I don't think that France will get

133
00:07:07,240 --> 00:07:11,480
Speaker 3: under la pen fully melonized, but they're going to moderate

134
00:07:11,560 --> 00:07:13,120
Speaker 3: compared to what they are right now.

135
00:07:13,280 --> 00:07:15,240
Speaker 2: Part if they come to power.

136
00:07:15,640 --> 00:07:15,960
Speaker 1: No reel.

137
00:07:16,200 --> 00:07:19,920
Speaker 4: When it comes to a lot of the policies, particularly

138
00:07:19,920 --> 00:07:23,040
Speaker 4: towards China, Why didn't and Trump actually see id why

139
00:07:23,280 --> 00:07:25,600
Speaker 4: more than they are facing off against one another. But

140
00:07:26,000 --> 00:07:29,000
Speaker 4: what you're pointing to is really the threat of increased

141
00:07:29,040 --> 00:07:31,800
Speaker 4: sanctions and more protection's policy, isn't it?

142
00:07:33,720 --> 00:07:34,360
Speaker 2: Yes, it is.

143
00:07:34,640 --> 00:07:38,040
Speaker 3: Of course Democrats are the public and want to be

144
00:07:38,120 --> 00:07:41,440
Speaker 3: tough on China, but by the administration and the view

145
00:07:41,560 --> 00:07:45,720
Speaker 3: of creating what they call a narrow yard with high

146
00:07:45,720 --> 00:07:52,680
Speaker 3: fences and concentrating on some critical technological factors and sanctions.

147
00:07:52,800 --> 00:07:56,280
Speaker 3: While the plan of trumpet is at face value, is

148
00:07:56,280 --> 00:08:00,520
Speaker 3: one of imposing a ten percent tariff on all the

149
00:08:00,640 --> 00:08:04,240
Speaker 3: imports coming to the United States, even from friends and

150
00:08:04,240 --> 00:08:08,320
Speaker 3: analyies like Europe, Japan, South Korean, you name it, and

151
00:08:08,560 --> 00:08:12,720
Speaker 3: up to sixty percent on Chinese goods. So I would

152
00:08:12,760 --> 00:08:14,920
Speaker 3: say that the big question mark is going to be

153
00:08:15,280 --> 00:08:18,040
Speaker 3: whether it's going to head and do that, or whether

154
00:08:18,080 --> 00:08:21,920
Speaker 3: it's going to offer some carrots and six telling, for example,

155
00:08:22,000 --> 00:08:24,520
Speaker 3: Europeans that if they spend more on the fence, or

156
00:08:24,560 --> 00:08:27,280
Speaker 3: if they change some of their trade policies. The big

157
00:08:27,320 --> 00:08:32,240
Speaker 3: big subject to exemption from the ten percent tariff. Same

158
00:08:32,280 --> 00:08:37,040
Speaker 3: thing for China. Gradually increase the tariffs every month to

159
00:08:37,080 --> 00:08:41,040
Speaker 3: reach eventually sixty percent. But if China does certain things,

160
00:08:41,080 --> 00:08:44,400
Speaker 3: maybe it stops short of that. But the point is

161
00:08:44,440 --> 00:08:48,360
Speaker 3: that any tariff is a regressive form of taxation. It

162
00:08:48,520 --> 00:08:53,719
Speaker 3: increases impurprises, and it causes a higher inflation. What a

163
00:08:53,760 --> 00:08:56,840
Speaker 3: good alternatively do and people have discussed this the idea

164
00:08:57,320 --> 00:09:02,240
Speaker 3: of instead of generalized tariff to or other countries, accept

165
00:09:02,280 --> 00:09:06,800
Speaker 3: the depreciation of the dollar and appreciation of other currency,

166
00:09:07,280 --> 00:09:11,840
Speaker 3: something equivalent to what happened with the Plaza or the

167
00:09:11,880 --> 00:09:16,199
Speaker 3: Loog agreements. People talk about the Mara Laga agreement on currencies,

168
00:09:17,000 --> 00:09:18,920
Speaker 3: but that would be similar in terms of impact on

169
00:09:18,960 --> 00:09:21,760
Speaker 3: inflation to a generalized story as well.

170
00:09:22,120 --> 00:09:25,240
Speaker 1: So noreel believe the dollar for a second. What is

171
00:09:25,280 --> 00:09:27,120
Speaker 1: the asset class that you think is going to have

172
00:09:27,200 --> 00:09:30,600
Speaker 1: the most exposure to the volatility of the election based

173
00:09:30,640 --> 00:09:35,959
Speaker 1: on the policies that we do know, bond market, equity market, I.

174
00:09:35,880 --> 00:09:39,920
Speaker 3: Would say that protection is going to lead to a

175
00:09:40,040 --> 00:09:44,600
Speaker 3: gradual increase in inflation, and that will be something will

176
00:09:44,640 --> 00:09:49,400
Speaker 3: be of concern, certainly to the bond market. But an

177
00:09:49,480 --> 00:09:53,200
Speaker 3: escalation of trade friction or a generalized trade war with

178
00:09:53,240 --> 00:09:57,480
Speaker 3: the rest of the world because our trading partner might

179
00:09:57,520 --> 00:10:01,040
Speaker 3: also impose tarts against the United States, is also a

180
00:10:01,160 --> 00:10:04,760
Speaker 3: tight to the stock market. A global trade ward not

181
00:10:04,880 --> 00:10:06,320
Speaker 3: going to be good for the stock market.

182
00:10:07,640 --> 00:10:10,200
Speaker 1: All right, Noriel, thank you so much. We truly appreciate

183
00:10:10,280 --> 00:10:12,960
Speaker 1: your patience and your time today. Noriel Rubini Rabini Macro

184
00:10:13,040 --> 00:10:17,160
Speaker 1: Associate CEO and NYU Stern School of Business Professor Meredith