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Speaker 1: Better than expected data, boosting optimism for a soft landing.

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Speaker 2: Just last week we saw the biggest jump in thirty years,

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Speaker 2: and how positive consumers are feeling about the economy. Things

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Speaker 2: are finally beginning thinking. We passed a lot of really

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Speaker 2: good legislation. We knew it was going to take time

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Speaker 2: for it to begin to take home, but it's taken

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Speaker 2: hold now and turning the economy around.

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Speaker 1: But Muhammad Aalrian of Queen's College, Cambridge, writing earlier this month,

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Speaker 1: the Biden administration cannot simply rely on lower inflation to

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Speaker 1: alleviate voters' concerns about its economic management. It needs to

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Speaker 1: communicate more effectively the exceptionalism of US economic performance. Muhammedan

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Speaker 1: pleased to say, join us now for more. Muhammed, good morning.

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Speaker 1: I think you're right on the money. Now did this

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Speaker 1: is a big, big issue for communication in.

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Speaker 3: The White House right now?

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Speaker 1: Can you give us what you think they should do

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Speaker 1: in the weeks and.

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Speaker 3: Months to come? Sure, John, thanks for having me on.

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Speaker 4: They have to translate things that they've achieved and that

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Speaker 4: the public doesn't appreciate.

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Speaker 3: Amazing job growth, very strong economy.

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Speaker 4: Remember even Bloomberg's at one hundred percent probability of recession.

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Speaker 3: In twenty twenty three.

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Speaker 4: Instead, we've ended up with a five percent third quarter,

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Speaker 4: a three point three percent fourth quarter, remarkable, stock markets,

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Speaker 4: record high, and it's the only advanced economy that is

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Speaker 4: investing in the drivers of tomorrow's growth. That is a

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Speaker 4: long list of achievements. And yet if you ask the

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Speaker 4: person in the street, and when we talked about the polls,

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Speaker 4: they think that the administration has mishandled the economy. There's

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Speaker 4: two reasons for that. One is inflation. You're absolutely right.

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Speaker 4: People think in terms of price level. So for them,

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Speaker 4: when you say we are winning the war over inflation,

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Speaker 4: they think that that means prices will come down, not

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Speaker 4: that the weight of price increases will come down. And

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Speaker 4: the second thing is that haven't communicated in a manner

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Speaker 4: that translates this to the every day So you need

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Speaker 4: a lot more consistent communication. And he needed simplified so

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Speaker 4: that the person in the stry understands why not only

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Speaker 4: are they better off than they have been before, but

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Speaker 4: the prospects is that we have new growth engines coming in.

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Speaker 1: I'd also argue, Mohammaed, you need the labor market to

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Speaker 1: hold on for the rest of this year to allow

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Speaker 1: the scars of inflation to actually heal. Do you think

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Speaker 1: the easing of financial conditions over the last few months,

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Speaker 1: let's go from the end of October, Mohammed, do you

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Speaker 1: think that's sufficient to delay any weakness in the labor market.

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Speaker 4: I don't because a lot of this is like pushing

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Speaker 4: on a string. Corporates will be able to refinance at

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Speaker 4: lower rates. Mortgage is slightly better. But the reality is

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Speaker 4: that the structural issue, I mean that is the big

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Speaker 4: risk for the administration is that the economy slows this

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Speaker 4: year because some of the drivers of last year's growth

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Speaker 4: are no longer there, including high savings, and secondly, inflation

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Speaker 4: stops going down. You know, John, I've said we are

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Speaker 4: in this sweetest spot of the inflation reduction right now.

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Speaker 4: It's going to get tougher going forward, and we've already

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Speaker 4: seen from Europe that is not out of the question,

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Speaker 4: that not only does inflation stabilize, but once in a

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Speaker 4: while you get the weight going up, and that would

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Speaker 4: really impact perceptions.

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Speaker 5: The White House is so excited to lean into this

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Speaker 5: Muhammad soft, very soft landing expectation. The timeline may be

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Speaker 5: on their side, but when you look out to November.

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Speaker 5: Where are the vulnerabilities to that soft landing.

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Speaker 3: So the vulnerability that swhere of them.

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Speaker 4: One is what the external world is imposing on the US.

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Speaker 4: It is getting harder to grow in this global environment.

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Speaker 4: We have disruptions of supply chains, we have cost pressures

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Speaker 4: in the pipeline, we have delays and shipments. All that

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Speaker 4: has a marginal impact. Two, the consumer is going to

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Speaker 4: be under more pressure. You've talked about debt levels in

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Speaker 4: the previous hour. Savings have come down.

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Speaker 3: We no longer have.

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Speaker 4: The pandemic savings being utilized to the extent it was before.

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Speaker 4: So there's a real risk that growth slows to the

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Speaker 4: one to one and a half percent level with downside

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Speaker 4: that we may slip into a negative quarter. And then thirdly, inflation.

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Speaker 4: We need inflation to keep on going down the market.

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Speaker 4: The market expects that it will do so in a

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Speaker 4: much more oldly way than I think will materialize.

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Speaker 3: Unfortunately, I'm struck.

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Speaker 6: By something I keep thinking about. As Cameron Dawson said,

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Speaker 6: Muhammad Or she was saying, she's checking for pricing power

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Speaker 6: among a lot of companies that they are going to

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Speaker 6: be reporting earnings if they don't have that much pricing power,

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Speaker 6: that's great news for disinflation, that's very bad news for

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Speaker 6: their bottom line in terms of just their margins. How

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Speaker 6: much is this sweet spot for disinflation not necessarily a

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Speaker 6: Goldilock spot for a lot of the stocks that are

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Speaker 6: getting bid up simply because it means margin compression down

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Speaker 6: the line.

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Speaker 4: Oh, I mean seeing it. I mean big theme for

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Speaker 4: this year is dispersion. And just look today with realizing

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Speaker 4: that not all tech is tech and not all luxury

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Speaker 4: is luxury. That is what the results are telling you

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Speaker 4: between Intel on the one hand for tech and on

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Speaker 4: the other hand for LVMH. What you're seeing is growing

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Speaker 4: dispersion and some companies will have pricing power, others will not,

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Speaker 4: And we are going to see this dispersion. Out of

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Speaker 4: the market right now is betting on a very aggressive

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Speaker 4: weight cycle allowing for everything to go up, because that

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Speaker 4: is the experience since the global financial crisis. As long

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Speaker 4: as they've fed loosens, everybody benefits. I think this time around,

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Speaker 4: we're going to see a lot more dispersion than we've

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Speaker 4: seen before.

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Speaker 1: Deutsche Bank says we'll get a reality check later this year.

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Speaker 1: They're looking for say ten percent downside on the S

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Speaker 1: and P five hundred's not particularly unusual. Are you expecting

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Speaker 1: that kind of reality check, Muhammed anytime soon for markets?

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Speaker 1: Given where stocks are at all time highs spreads, global

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Speaker 1: credit spreads incredibly time, you know, John, I'm.

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Speaker 4: Not in a business of predicting when that happens and

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Speaker 4: when it happens, and where people have been wrong in

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Speaker 4: the past, including last year, is ignoring the technicals. And

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Speaker 4: the technicals right now are incredibly favorable. So the big

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Speaker 4: question for me is what waks favorable Technically? By that,

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Speaker 4: I mean there's still money in the sideline that can

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Speaker 4: be put to work, so dips will be viewed as

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Speaker 4: buying opportunities for a while Low, John, The thing I

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Speaker 4: worry about most is the sense that growth is going

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Speaker 4: to disappoint with a downward risk, the balance of risk

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Speaker 4: on the downside. This comes against the universal romance with

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Speaker 4: the softness of all soft landing, and then secondly a

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Speaker 4: recognition that the Fed is not going to validate what's

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Speaker 4: being priced in right now in terms of cuts.

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Speaker 1: Cham and pound next week. What kind of message you

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Speaker 1: expect in the one we heard from Williams a few

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Speaker 1: days after his can December, or the one we heard

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Speaker 1: from Power at the December Neese conference, or.

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Speaker 4: The one will hear at the beginning of the press

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Speaker 4: conference versus the one will hear at the end of

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Speaker 4: the press conference.

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Speaker 3: I don't know if sorry, it's been confusing. It has

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Speaker 3: been confusing. Part of that is that this is a

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Speaker 3: confusing time.

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Speaker 4: You know, people that I talked to privately, Expectations john

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Speaker 4: are all over the place. That people who think they

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Speaker 4: won't stop, they won't cut waste until the summer, and

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Speaker 4: then we get seventy five basis points that people who

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Speaker 4: think they'll start in March and they'll they'll they'll frontload

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Speaker 4: it because of the elections, that people who think like

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Speaker 4: me that they're likely to wait until near it, much

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Speaker 4: nearer to the summer, and then start with twenty.

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Speaker 3: Five basis points.

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Speaker 4: Expectations are all over And what's really interesting is that

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Speaker 4: forward guidance have lost has lost its power. The FED

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Speaker 4: has been very clear in terms of its forward guidance,

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Speaker 4: and the market is saying, yeah, sure, but I'm not

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Speaker 4: going to listen to you.

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Speaker 3: That's reallymatic.

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Speaker 1: You said you're not in the business of predicting the future.

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Speaker 1: Can I just jump in and get you to predict

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Speaker 1: the future. When's that first rate cut come in, Muhammed, My.

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Speaker 4: Own gut feeling is that it will come in the

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Speaker 4: beginning of the summer, so call it June, maybe July,

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Speaker 4: and it will be twenty five basis points. And not

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Speaker 4: only do I think that that's what's going to happen,

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Speaker 4: I think that that's what should happen.

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Speaker 1: Okay, Muhammed, I appreciate your time today this morning. Thank

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Speaker 1: you Sir as always. Muhammad al Erin of Bloomberg Opinion

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Speaker 1: and Queen's College, Cambridge,