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Speaker 1: Let's get to our guest, Henrietta Treys, who's director of

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Speaker 1: economic policy at Vada Partners. Henrietta, I'm not in the

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Speaker 1: camp of gushing journalists over Andrew Bailey's comments about recession

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Speaker 1: for more than a year when it hurts your currency

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Speaker 1: and that makes inflation even worse, and it seems like

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Speaker 1: it's a little grandstanding guessing that far in the future.

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Speaker 1: That said, it was a very strong message and one

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Speaker 1: that even the US market could not ignore. Your thoughts.

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Speaker 1: I think predicting a recession for that long, I think

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Speaker 1: is going to come with any number of opportunities to

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Speaker 1: blow back UM. The question I think though, was really

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Speaker 1: how deep is it going to be? UM? Is it

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Speaker 1: going to be enough to derail the other underlying progress.

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Speaker 1: There's been a lot of federal action, UM in terms

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Speaker 1: of propping up domestic manufacturing of key sectors that caused

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Speaker 1: love supply chains the drove inflation and the recessionary environment

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Speaker 1: in the first place. So I think there's been a

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Speaker 1: lot and to blunt the future forverlooking estimates for the

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Speaker 1: economy UM that probably have not been factored into that analysis, Henrietta,

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Speaker 1: aren't remarks like that, Actually, ultimately Um, what what's the

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Speaker 1: word I'm looking for here? Irresponsible? Given that what it

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Speaker 1: could do is actually make people think there's a recession

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Speaker 1: which is going to be long and deep and actually

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Speaker 1: becomes a self fulfilling prediction. Absolutely, It's such a great

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Speaker 1: point and one that I think you can see resonate

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Speaker 1: across so many different um components of the economy. Um.

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Speaker 1: In part you have, uh, the perfect analogy, which would

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Speaker 1: be the unemployment data. You know, the average American voter

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Speaker 1: thinks unemployment is well above six percent, which is about

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Speaker 1: as far off as you can get. There are what

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Speaker 1: likecent of the population believes the unemployment rate is above eleven.

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Speaker 1: So it's this idea of almost that self fulfilling prophecy,

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Speaker 1: as you mentioned, where people start to think the economy

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Speaker 1: is bad. They hear the word inflation and they just

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Speaker 1: believe that inflation is true. Then you look at the

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Speaker 1: trending declines, fifty one straight days of gas prices coming down, um,

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Speaker 1: and you see it when you drive, I certainly do. Um,

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Speaker 1: It's it's not real, you know. Yeah, we saw Twitter

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Speaker 1: pictures of three dollars you know on the on the

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Speaker 1: advertising um. Uh, you know, posters at gas stations. Listen

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Speaker 1: of the of the many combinations for growth and inflation,

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Speaker 1: you know, both rising or both falling, or one up

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Speaker 1: and one down. The sweet spot for the equity market

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Speaker 1: would be inflation falling. You just highlighted that while growth

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Speaker 1: hangs in there, we're seeing a glimpse of that. Now

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Speaker 1: can it continue? I think it can continue. Um, I

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Speaker 1: think that's the trajectory that we're on. Obviously, the job

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Speaker 1: state will be closely watched tomorrow, and you know, it's

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Speaker 1: one of those mixed things. I keep remembering something I

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Speaker 1: heard towards the middle of COVID on your program where

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Speaker 1: someone said, you know, we knew we would come out

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Speaker 1: of COVID, we knew we get out of it, but

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Speaker 1: nobody ever said it was going to be cheap. And

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Speaker 1: that's sort of what we're looking at here. You've got

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Speaker 1: a lot of mixed data, a lot of funky quarters,

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Speaker 1: and um, the job numbers coupled with inflation, the consumer

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Speaker 1: is so robust, Henrietta, I want to get a sense

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Speaker 1: of inflation. And you know, we have this debate about

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Speaker 1: it being supply side or demands side, but has it

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Speaker 1: become structural? And I'll give you three reasons why some

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Speaker 1: would believe. So, we've got deglobalization and redigging of supply chains.

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Speaker 1: That's something which is inflationary. We've got green inflation as well.

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Speaker 1: On top of that, we've got a shrinking working age

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Speaker 1: population struggling to meet the demands coming from an aging population,

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Speaker 1: also piling upward pressure on prices. So it's inflation here

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Speaker 1: for good. I mean, I would just add one more

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Speaker 1: to that, and that's the group of people that have

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Speaker 1: gone out of the workforce during COVID and are probably

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Speaker 1: not going to re enter UM. That's another portion that

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Speaker 1: I think gets talked about not quite enough UM, as

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Speaker 1: we're still seeing that fall out. The inflation argument, though,

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Speaker 1: is definitely something as we've seen right now you will

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Speaker 1: probably have, and based off my conversations with a lot

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Speaker 1: of investors, you have this ideological UM deadline that I've

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Speaker 1: noticed and speaking with clients of around the fall, around

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Speaker 1: the November elections, where they think all this will sort

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Speaker 1: of come to ahead and start to slow down as

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Speaker 1: either the nation or the conversation switches to new topics.

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Speaker 1: And I have to say, if you're seeing, you know,

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Speaker 1: lumber prices come down and gas prices come down that

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Speaker 1: is going to eventually at least fade out the conversation. UM.

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Speaker 1: And the way you would think about this and sort

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Speaker 1: of a political ingle, is that talking about inflation in

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Speaker 1: such dramatic terms for the first half of this year

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Speaker 1: created this expectation that it was rampant and out of control.

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Speaker 1: And as we pointed out earlier, you know, the economies

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Speaker 1: in this deeper session, the economy is doing poorly. The

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Speaker 1: the direction of the country is going wrong. Um. But

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Speaker 1: a lot of that stuff has peaked and is now

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Speaker 1: starting to come back down to earth, and that's kind

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Speaker 1: of create its own new narrative. And I think count

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Speaker 1: or that structural um inflation argument that it's here to

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Speaker 1: stay in perpetuity, we're seeing come down so holiftically in

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Speaker 1: such core places like copper and gas. I don't think

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Speaker 1: it's sustainable. And the talk continues the FED. In fact,

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Speaker 1: the FED speakers have have tried to walk back to

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Speaker 1: your peals perceived devishness. At the last meeting when he

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Speaker 1: said we were close to neutral, I think he just

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Speaker 1: kind of misspoke. But anyway, has this FED speak worked?

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Speaker 1: I mean, the FED speak people are just frustrated, I think,

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Speaker 1: and they're finding a lot of ways to vent their

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Speaker 1: frustration at the FED. UM. You know, case in point

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Speaker 1: would be a couple of weeks back when they started

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Speaker 1: leaking data before they decided on their Sev's hike. You

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Speaker 1: know that that kind of a thing is I think

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Speaker 1: really frustrated investors UM, And so there's a lot of

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Speaker 1: inks there. I think it's no surprise that we're about

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Speaker 1: to see some material turnover amongst you know, the top

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Speaker 1: economists in the United States at least UM, whether that

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Speaker 1: Secretary Yellen or other people in leadership and the cabinet

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Speaker 1: secretaries and the Biden administration. There's about to be a

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Speaker 1: sea change, which you would expect at the second at

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Speaker 1: the end of the second year of the first term anyway.

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Speaker 1: But I think there's just a lot of attention on

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Speaker 1: that and UM frustration as you see in that directional

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Speaker 1: h sentiment, how is the state of the economy doing poorly?

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Speaker 1: To most people, just that's their visceral reaction. But I

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Speaker 1: think the data suggests otherwise, and that will UM ultimately

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Speaker 1: bear bear out to be UM. I think the bigger

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Speaker 1: role here the actual facts on the ground, as opposed

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Speaker 1: to the way we feel Henry. You know you've served

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Speaker 1: and helped the administrations of very various administrations and you

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Speaker 1: know looked at you know, what happened in two thousand

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Speaker 1: and eight. Do you think politicians get it? Oh, that's

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Speaker 1: a good question. Um well, I would say this in

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Speaker 1: my experience, politicians do not respond to one off numbers.

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Speaker 1: So the FED rate height decisions on a one off basis,

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Speaker 1: or inflation numbers on a monthly basis, it's not that

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Speaker 1: one hit. It's the trend line that they usually focus on. So,

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Speaker 1: for instance, as soon as we got the July numbers,

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Speaker 1: we immediately started looking ahead to the August tenth numbers

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Speaker 1: on inflation. Everybody's looking for a trend, and that's usually

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Speaker 1: what politicians respond to, um quarter over quarter, a month

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Speaker 1: over a month. They want to see a couple in

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Speaker 1: a row, and they tend to dismiss the one off

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Speaker 1: outliers unless it meets their political talking points. In case

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Speaker 1: they'll talk about it, and we have to very diplomatically

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Speaker 1: put whether they get it or not. But thank you

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Speaker 1: so much for joining us today that Henri had to

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Speaker 1: trace that from Vada Partners. This is Blood Asia