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Speaker 1: Jared Woodard of Bank of America seeing room to run
Speaker 1: in twenty twenty five, writing we favor equities given upside
Speaker 1: potential from broader earnings growth, higher productivity, and deregulation in
Speaker 1: the US prioritize cyclicals with exposure to enduring themes like defense, tech, SMID, industrials,
Speaker 1: and energy. Jared joins us now. Jered, good morning, Thank
Speaker 1: you for being with us. Happy holidays. We're launching that
Speaker 1: today a special breaking news Jared, I want to start
Speaker 1: with this idea of a broadening out at a time
Speaker 1: we're in the past couple of weeks we've seen a
Speaker 1: real stalling in that kind of activity.
Speaker 3: What makes you.
Speaker 1: Think we're going to restart and go back to that
Speaker 1: idea of all of the stocks outside of the Magnificent
Speaker 1: seven outperforming.
Speaker 4: Well, you know, history's on our side here. If you
Speaker 4: look at the long sweep of the US equity market
Speaker 4: in the twentieth century, the average weight in the S
Speaker 4: and B five hundred by market cap through real economy
Speaker 4: sectors like financials, industrial, materials, energy, those parts of the
Speaker 4: economy occupied forty five percent, sometimes more of the S
Speaker 4: and B five hundreds that was the norm.
Speaker 5: Today they're much smaller. They're in the twenties altogether.
Speaker 4: And of course it's tech and consumer discretionary and communications,
Speaker 4: these growth stocks that comprise only fifty percent of the market.
Speaker 4: Our view is that as the policy environment shifts, particularly
Speaker 4: in the United States, as sticky inflation, higher growth potential
Speaker 4: as well make the value of those real economy sectors rise,
Speaker 4: investors shill be positioned for a moderation at the sector level,
Speaker 4: at the thematic level, because we think there's a lot
Speaker 4: of potential from the regulation from earnings broughting out across
Speaker 4: the economy and for higher productivity, particularly in the United States,
Speaker 4: continuing a trend of higher productivity that started even some
Speaker 4: years ago.
Speaker 1: At a certain point, do yields have the potential to
Speaker 1: stymy this and we've seen that over the past couple
Speaker 1: of sessions. Just a question marks around the deficit, question
Speaker 1: marks just around how much stickiness there is an inflation.
Speaker 1: Where do you weigh in on that? How dependent is
Speaker 1: this theory on yields saying kind of where they are
Speaker 1: going lower?
Speaker 4: Well, as I said allocators, we think that long term
Speaker 4: fixed income, especially government bonds and even investment great corporate
Speaker 4: bonds may not be as attractive in coming years as
Speaker 4: they have been in the last few years. You know,
Speaker 4: we've had this thesis on the end of sixty forty
Speaker 4: for a number of years now. That's basically played out
Speaker 4: quite well. If you look at some of the different
Speaker 4: acid allocation approaches in the market, familiar and unfamiliar. Having
Speaker 4: big allocations to long duration fixed income has been a
Speaker 4: losing move most if you look at it across the
Speaker 4: treasury curve, many parts of the market are actually still
Speaker 4: underwater from recent years. I'm not worried about rapid rise
Speaker 4: in bond yields hurting the equity market. I do think
Speaker 4: that we may see stickier inflation and stickier bond yields
Speaker 4: in years to come, in a way that makes it
Speaker 4: more attractive to be in credit and higher yielding parts
Speaker 4: of the fixed income market, and in short duration parts
Speaker 4: of the equity market, investing in companies that have real
Speaker 4: profits today, real cash flows today that they can deploy
Speaker 4: either into their businesses or to shareholders, rather than waiting
Speaker 4: for companies that might not see tangible profits until far
Speaker 4: out into the future.
Speaker 6: Jared, So you're describing a much more active approach to
Speaker 6: not just this whole market, but the bond market included
Speaker 6: in that. And we've had plenty of people come on
Speaker 6: here and say, everybody is an indexer now, the way
Speaker 6: that people are exposed to bonds are through indices. How
Speaker 6: unprepared there then are investors in twenty twenty five for
Speaker 6: what you're describing when sixty forty target dated funds and
Speaker 6: buy the whole market kind of strategies aren't going to
Speaker 6: work as well.
Speaker 4: Yeah, this is an extremely important point because both in
Speaker 4: the equity and the fixed income markets, we look at
Speaker 4: benchmarks today and they look more unbalanced than they've ever been.
Speaker 4: The S and P five hundred is something like two
Speaker 4: thirds comprisedive of growth stocks. The US aggregate bond benchmark
Speaker 4: and other familiar bond benchmarks that many people use are
Speaker 4: weighted at something like seventy percent toward long duration assets
Speaker 4: towards assets that benefit from deflation. Now, I think a
Speaker 4: more balanced approach is going to be extremely helpful in
Speaker 4: the future. It's already been a great benefit in the
Speaker 4: last several years, as investors who can wait in a
Speaker 4: more balanced way across asset classes capture different risk factors,
Speaker 4: not just one big deflationary or pro growth stock type
Speaker 4: risk factor can achieve better returns and better risk adjusted
Speaker 4: That's our call for twenty twenty five, Jared.
Speaker 6: When it comes to broad our asset classes, we're speaking
Speaker 6: with Chris Farona, strategist earlier, who pointed out that volatility
Speaker 6: is low the bond market, volatility is low in the
Speaker 6: equity market, but where it's not is the FX market
Speaker 6: and especially pairs particularly vulnerable to fiscal policy.
Speaker 5: Going forward.
Speaker 6: How worried are you about a broader contagion that starts
Speaker 6: and stems from currency markets.
Speaker 4: Well, I think if we if we fast forward five
Speaker 4: or ten years from now, we could look at at
Speaker 4: one data point from the future that would be valuable
Speaker 4: to help us allocate across assets today, it would be
Speaker 4: the level of the US dollar on a real tradeway
Speaker 4: to basis. The US dollars at the highest since nineteen
Speaker 4: eighty five. It's too strong. It prevents American exports from
Speaker 4: being competitive on the global market. Just as importantly, it
Speaker 4: prevents consumers in places like Europe and China from benefiting
Speaker 4: from the wealth that they produce. A rebalancing in the
Speaker 4: global economy, a slightly weaker dollar, slightly stronger currencies elsewhere
Speaker 4: could create the conditions for some really incredible potential growth. Alternatively,
Speaker 4: if policy makers and leaders can't find a way toward
Speaker 4: greater balance in the global economy flows of goods and
Speaker 4: flows of capital, and the dollar remains as strong as
Speaker 4: it is, it creates the conditions for a very unpleasant,
Speaker 4: really kind of a bubble in which there's no alternative
Speaker 4: to US tech and even to US treasuries for all
Speaker 4: the capitals.
Speaker 5: Flowing around the world.
Speaker 4: I think that what happens with the dollar, and whether
Speaker 4: we can avoid competitive currency devaluation in the years to come,
Speaker 4: is one of the most important trades and questions to
Speaker 4: answer in the market today.
Speaker 1: But Jared, how.
Speaker 3: Would policies mean a weaker dollar when the ones that
Speaker 3: are coming in and being discussed right now by the
Speaker 3: Trump transition actually call for a higher dollar When you
Speaker 3: think of things like tariffs.
Speaker 4: There's a lot of debate right now on tariffs, on
Speaker 4: many other policies. I think economic history gives a much
Speaker 4: different picture than the consensus today. Our economists Bank of
Speaker 4: America have written a lot about this, and they suggest
Speaker 4: even if you take a kind of a standard view
Speaker 4: on how tariffs and some of these other policies might
Speaker 4: affect the economy, even in that case it's a one
Speaker 4: time shock rather than a persistent effect on the market,
Speaker 4: and the effects may actually prove.
Speaker 5: To be quite small.
Speaker 4: I think there's actually a lot of potential for managing
Speaker 4: trade relationships, managing flows of capital that many countries have
Speaker 4: done for a very long time. The West hasn't engaged
Speaker 4: in that very much. And so the perspective of some
Speaker 4: of these Western policy makers, including the US, is that
Speaker 4: really we're actually trying to get back to a level
Speaker 4: playing field when it comes to managing exports, industrial policy,
Speaker 4: and trade relationships. Bringing things to a level playing field
Speaker 4: that until now have been actually quite one sided. So
Speaker 4: if that's true, then it may be that the effects
Speaker 4: of these policies are much less inflationary, much less tagflationary
Speaker 4: than a lot of consensus has believed so far.
Speaker 3: Do you believe potentially we'll see a mar Lago record
Speaker 3: over the course in the next four years.
Speaker 5: I don't have.
Speaker 4: Any special insight, although I do think that there's a
Speaker 4: lot of potential for leaders around the world to get
Speaker 4: the together and find a new path, not just with
Speaker 4: their currencies but with these other bigger picture relationships, to
Speaker 4: take advantage of some of the potential. You know, in
Speaker 4: Europe and shine other parts of the world, policymakers know
Speaker 4: that overproducing a good export is not going to be
Speaker 4: a solution. They've been doing it for a while and
Speaker 4: it's not working. America knows that running massive debt epicits
Speaker 4: and increasing debt to fund unbalanced consumption is not going
Speaker 4: to be a workable path either. So it's clear there's
Speaker 4: some potential here for a broad, negotiated kind of a settlement.
Speaker 4: The open question is whether we have the right leaders
Speaker 4: for the job now and in the future.
Speaker 1: Jared, just before you go, you did make this point
Speaker 1: I do want to dig a little bit further where
Speaker 1: you said, if you could see one data point to
Speaker 1: set asset allocation into twenty thirty, it would be the
Speaker 1: level of the US dollar. Can you give us a
Speaker 1: sense of how the asset allocation would change if it
Speaker 1: were strong or if it were weak.
Speaker 4: Let's say, just you know d x Y get getting
Speaker 4: down to ninety or even to eighty, A great global
Speaker 4: rebalancing in goods and capital. I think that unlocks potential
Speaker 4: across the market, so deep value arguably value traps in
Speaker 4: the market today, Places like European and Chinese equities could
Speaker 4: suddenly become live options again for investors. Tech sectors, growth
Speaker 4: stocks suddenly become much less attractive compared to value. Real
Speaker 4: assets can perform really well. Alternatively, if there is no
Speaker 4: real policy leadership on the global stage, or there isn't
Speaker 4: a path to some kind of success, and you just
Speaker 4: see continued excessive dollar strength, let's let's think about you
Speaker 4: know d x Y at one twenty. Then the thesis
Speaker 4: theories just there simply is no alternative to the US
Speaker 4: market and the dominance of growth stocks, of tech and
Speaker 4: treasuries and so on for recent decades would be expected
Speaker 4: to continue. The danger there, of course, is that's how
Speaker 4: most investors are already allocated today. That's where the big
Speaker 4: the length is in positioning. I think that could set
Speaker 4: up some really unpleasant overvaluation even bubble light condition that
Speaker 4: can create a lot of fragility and even volatility in
Speaker 4: the market at.
Speaker 5: A generational level.
Speaker 4: I think it's an extremely important policy moment, and given
Speaker 4: how extreme positioning evaluation is becoming, markets are really exposed
Speaker 4: to what happened in these big picture policy debates.
Speaker 5: In the years dot com. It's extremely important.
Speaker 1: Jared Witard, we look forward to speaking to you sooner
Speaker 1: than that to talk through what some of these policy
Speaker 1: implications are. Jared Witdard of Bank of America. We really
Speaker 1: appreciate your time. Chris joins us now. Chris, great to
Speaker 1: see you here, Welcome back. I'm just I'm not going
Speaker 1: to go with the puns, although I kind of want to.
Speaker 1: What do you make of the fact that we're just
Speaker 1: seeing such limited breaths or bad breath in the market
Speaker 1: right now with so few stocks gaining amid the recent
Speaker 1: eating out of some of the tech socks.
Speaker 5: Yeah, frankly, I think it's a little overstated.
Speaker 7: I mean, this is two weeks of some squishy internals,
Speaker 7: it's not two months or two years. The entire year
Speaker 7: twenty twenty four, we've had between seventy and eighty five
Speaker 7: percent of stocks of the two or day moving average,
Speaker 7: so this has been relatively broad for most of the year.
Speaker 5: I think the bar has to be higher before.
Speaker 7: You say, oh, my goodness, the breadth is deterioring to
Speaker 7: such an extent where it sends this awful message about
Speaker 7: what's going on under the service of the market. I
Speaker 7: don't think we're at that point yet. We're in the
Speaker 7: middle of December. As we know, it can be a
Speaker 7: seasonally choppy period here these next two or three weeks.
Speaker 5: You tend to resume with strength in the January.
Speaker 7: I think the question, Lisa will be does the market
Speaker 7: justify or does it continue to justify the level of.
Speaker 5: Bullishness that's out there.
Speaker 7: I mean, you start the segment by talking about what
Speaker 7: the expectations are for next year. So I think as
Speaker 7: analysts we have to ask ourselves is the market still
Speaker 7: living up to the hype? And that'll be the big
Speaker 7: question for us overcoming weeks.
Speaker 5: What is the hype?
Speaker 1: And I asked this because it is it earnings, is
Speaker 1: it policy or is it fed? Which is the most
Speaker 1: important hype for this market to live up too?
Speaker 8: Well?
Speaker 7: I think there's clearly this awakening am animal spirits.
Speaker 5: You see in the targets.
Speaker 7: The attitudes from the cell side today are remarkably different
Speaker 7: than they were a year ago.
Speaker 5: We did that exact same study twelve months ago.
Speaker 7: The street was looking for basically an unchanged S and
Speaker 7: P in twenty twenty four and what are we up?
Speaker 5: Twenty five percent?
Speaker 7: Right, So there's clearly a resetting of expectations here.
Speaker 5: And I don't think that's fatal or catastrophic.
Speaker 7: But you know, what we've always tried to answer is
Speaker 7: does the market justify that level of enthusiasm. I think
Speaker 7: the good answer so far is largely yes. I don't
Speaker 7: think the internals have deteriorated to such an extent. I
Speaker 7: think the leadership is still pretty pro cyclical here. But
Speaker 7: as we write, our margin for error has to be
Speaker 7: smaller than it has been in the past because the
Speaker 7: expectations are high, you know. And I think interestingly you
Speaker 7: kind of hint at Europe here a little bit, where
Speaker 7: the setups the exact opposite is probably in Europe. Here,
Speaker 7: I think the expectations are remarkably remarkably low for something
Speaker 7: to go right here, and it could be any number
Speaker 7: of things. It could be China getting better, it could
Speaker 7: be peace, it could be any number of things. But
Speaker 7: when you're talking about forty and forty two pmis in
Speaker 7: France and Germany, the bar is really low for something
Speaker 7: to go right there.
Speaker 6: A low bar for Europe and China, high bar for
Speaker 6: the US. I found it so interesting, though, that you've
Speaker 6: just been on a tour talking to clients and a
Speaker 6: majority saw the next move being ten percent lower in
Speaker 6: the S and P.
Speaker 7: What did you think about it that it was such
Speaker 7: an outlier. We've basically been on the road every day
Speaker 7: since the election. It's been a busy six weeks. I'm
Speaker 7: happy to be back in New York. But what's been
Speaker 7: such a consistent feature of all of our client conversations
Speaker 7: for four or five weeks is this unleashing of animal spirits.
Speaker 7: And then something happened over the last week where attitudes
Speaker 7: have shifted here a little bit. They've become a bit
Speaker 7: more restrained or modest. I don't know yet if that's
Speaker 7: an outlier or if people are seeing something, But I say,
Speaker 7: on balance, if you look at all of our sentiment
Speaker 7: indicators empirically, they're falling somewhere between the eighty fifth and
Speaker 7: ninety percentile historically. So we're kind of right in the
Speaker 7: zone where you got to maybe watch your back here
Speaker 7: a little bit, because it's never what you know that
Speaker 7: hurts you.
Speaker 5: It's what you don't know that gets you.
Speaker 7: And there's probably something out there that we're not thinking
Speaker 7: about that could be an.
Speaker 5: Issue some point next year.
Speaker 6: But this is the thing, and I mean, Lisa started
Speaker 6: out with this, you so rightly call out that the
Speaker 6: forecast this time around last year was a gain of
Speaker 6: less than two percent, and it really paid off to
Speaker 6: fight the bears. It paid off to not listen to
Speaker 6: them and go fall in. How hard is it to
Speaker 6: fight the bulls? How hard is it to fight momentum
Speaker 6: like this, even if at times it seems a little
Speaker 6: bit on the edge of your flum Yeah, well.
Speaker 7: I don't think you can yet, because I still think
Speaker 7: the market's living up to the hype, and you see
Speaker 7: it in a couple places. Number one credit conditions are
Speaker 7: remarkably benign here. I think if something meaningful is going
Speaker 7: to shift out.
Speaker 5: There you're going to see a deterioration took credit.
Speaker 7: I think secondly, the leadership on balance is generally pro cyclical, right,
Speaker 7: That's been a tenet of this rally all year. So
Speaker 7: if I'm going to change the call, I need the
Speaker 7: consistent stuff to deteriorate. And neither credit nor a leadership
Speaker 7: have really to any meaningful degree. I think the three
Speaker 7: things you can kind of watch here to maybe shift opinion.
Speaker 7: Notice how post election equity vol and bondvall have collapsed, right,
Speaker 7: But what hasn't Currency vall has not. Currency vol is
Speaker 7: kind of still near the high as it was pre election.
Speaker 7: So I think if something is bubbling or brewing out
Speaker 7: there that we're not focused on, maybe an M and
Speaker 7: H from a currency markets here, a dollar SNH looks
Speaker 7: like it could be lost higher here we've obviously seen
Speaker 7: the move in the euro. I think if something or
Speaker 7: even dollar yen, I think if something's brewing that's unexpected
Speaker 7: in twenty five, it probably comes from currency, not from
Speaker 7: credit rates or equity.
Speaker 3: When you say that, potentially you're talking to these clients
Speaker 3: who think in the last week at least those final
Speaker 3: clients on your road trip around America that think we
Speaker 3: could see the ten percent pullback is the reason because
Speaker 3: of the policy uncertainty, or they just think maybe we're
Speaker 3: getting a little bit too lofty with these valuations.
Speaker 5: It's more the latter.
Speaker 7: I think, ironically, there's an embrace of kind of what
Speaker 7: the proposed policies are looking forward to. I mean, we
Speaker 7: were talking about this somewhat casually yesterday in a meeting.
Speaker 7: There's a kind of a nineteen eighties feel out there
Speaker 7: right now, and it's certainly not lost on me. I
Speaker 7: do think, you know, speaking in the context of sentiment, again,
Speaker 7: it's emblematic of an environment where the bar has certainly
Speaker 7: been raised here. I think the expectations are pretty lofty
Speaker 7: going to next year.
Speaker 5: What we've seen historically.
Speaker 7: Is when you've had a change in power, the market
Speaker 7: tends to run until the inauguration.
Speaker 5: And then the spring is just a chop.
Speaker 7: I'm not opposed to that outcome here, but we'll certainly
Speaker 7: call it as we say it.
Speaker 3: You've been constructive on China. Yeah, what do you make
Speaker 3: of the latest we've heard out of China in terms
Speaker 3: of looser fiscal policy, looser monetary policy, but still very
Speaker 3: thin on the details.
Speaker 7: Yeah, you know, we've always kind of said with China,
Speaker 7: it's not my opinion or your opinion that matters, it's
Speaker 7: the market's opinion. And I think the way the market
Speaker 7: has interpreted the hints of stimulus that you've seen over
Speaker 7: the last several months from there is different than how
Speaker 7: it interpreted everything else the last two.
Speaker 5: Or three years. I mean, the momentum surge you saw on.
Speaker 7: September was significant, and I thought the consolidation in the
Speaker 7: months that followed the last two months was pretty benign.
Speaker 5: And you get some kind of renewed signs of life
Speaker 5: this week. What's important for us in China, consumer discretionary
Speaker 5: is leading. That's odd for me.
Speaker 7: If we're still in a black hole, recessionary, apocalyptic environment.
Speaker 7: The financials act pretty well, Chinese tech is breaking out.
Speaker 5: So I think it would be silly not even to
Speaker 5: be open to the idea that something's changing out there.
Speaker 7: And what I encounter traveling and talking to clients is
Speaker 7: complete resistance to the idea that something's changing, So.
Speaker 5: Be open to it. Most people don't even know China's
Speaker 5: outperformed this year.
Speaker 7: FXI is up forty, Nasdex up twenty five, so it's
Speaker 7: already happening and there's a complete disdain or neglect for it.
Speaker 1: Not a complete disdain. We just saw the biggest influence
Speaker 1: into Chinese stocks going back to nine weeks, so we
Speaker 1: do see some sort of acceptance of this idea. But
Speaker 1: I am wondering going forward, putting all of what you
Speaker 1: just said together, and given how high the bar is
Speaker 1: in the US and how low the bar is in
Speaker 1: Europe and to some degree in China, are you overweight
Speaker 1: Europe and China and basically shifting away from some of
Speaker 1: the high calls in the US.
Speaker 5: So we're not overweight those parts of the world yet.
Speaker 7: But I do think it's a good exercise kind of
Speaker 7: at the end of the year, as the calendar gets
Speaker 7: ready to return, is to reset the chip stack and
Speaker 7: kind of get closer to the benchmark. And I want
Speaker 7: to kind of get closer to the US benchmarket smaller,
Speaker 7: and I want to get a little bigger elsewhere. I
Speaker 7: do think there's the potential for good surprises in other
Speaker 7: parts of the world. If I can make one last point,
Speaker 7: I would encourage everyone go look at the European defense contractors.
Speaker 7: They're all breaking down. When did they break out? They
Speaker 7: broke out at the start of the war. Is something
Speaker 7: imminent peace brewing in that part of the world.
Speaker 5: I want to be open to that.
Speaker 1: I want to be open to that too. Christopher Own,
Speaker 1: thank you so much for being with us. Chrispher of
Speaker 1: statigaz a bird company, always wonderful to see you, and
Speaker 1: I think that we can officially launch Happy Holidays, Happy Holidays.
Speaker 1: Former New York Fed President Bill Dudley, writing in his
Speaker 1: new column that just dropped across Bloomberg, the FED can
Speaker 1: and must at times make assumptions about what politicians will do.
Speaker 5: When the Trump.
Speaker 1: Administration's tariff and deportation policies coming to focus, that outlook
Speaker 1: may become less rosy. Bill Dudley, I'm so pleased to
Speaker 1: say joins us now, Bill, thank you so much for
Speaker 1: being with us. Let's just talk about how a FED
Speaker 1: comes up with a dot plot looking into twenty twenty
Speaker 1: five without making some assumptions about what the policy backdrop
Speaker 1: is going to look like.
Speaker 8: I think they are going to make assumptions.
Speaker 9: I think they're going to assume that the twenty seventeen
Speaker 9: tax cuts do get extended. So I think what Paul
Speaker 9: said at the last press conference, you don't guess speculator
Speaker 9: to assume is actually contradicted by what they actually did
Speaker 9: in December twenty sixteen when they did include the fiscal
Speaker 9: policy students that they thought was going to be enacted
Speaker 9: by the first Trump administration that was in the forecast.
Speaker 8: So I think, you know, they have to assume.
Speaker 9: It when it's big, when it's likely, when it's sort
Speaker 9: of clear what it's going to be, and when it's
Speaker 9: priced into financial markets. And I think that's true for
Speaker 9: the tech, for the extension of the tax cuts. It's
Speaker 9: not true for terrorists or immigration policy, because it's very
Speaker 9: uncertain about what those policies actually will be at this point.
Speaker 1: Bill, Do you think that that's why it's more important
Speaker 1: to look at, say, tax cuts, than some of the
Speaker 1: other policies that could potentially have contradictory effects on inflation
Speaker 1: and growth.
Speaker 9: I think the real problem on terrorits is you don't
Speaker 9: know how big they are, how long they're going to last,
Speaker 9: what the whether it's going to be retaliation, And on deportations,
Speaker 9: you just don't know the magnitude or speed of what
Speaker 9: the program is going to be. And so if you
Speaker 9: don't know what it's going to be, it's really hard
Speaker 9: to put it into the forecast as in terms of
Speaker 9: its likely effects. Well, so I think the text so
Speaker 9: I think the text cut assumption is going to be
Speaker 9: in there, but nothing else.
Speaker 3: Well, when it comes to terrorists is September twenty eighteen,
Speaker 3: Tealbook talked about the fact that in the first iteration
Speaker 3: of Trump they just saw the terroriff's as a one
Speaker 3: hit threat. Do you agree with that assessment and do
Speaker 3: you think that would still hold today for this FOMC.
Speaker 9: I don't think you're gonna make any assumptions on terror
Speaker 9: shick because we just don't really know what the administration
Speaker 9: is going to do. I think the big difference, though,
Speaker 9: the terrorsts that were done in the first Trump administration
Speaker 9: were actually relatively small. A tariff on an importse one
Speaker 9: from one and a half percent of imports to three
Speaker 9: percent of imports during the first Trump administration, We're talking
Speaker 9: about much bigger numbers. Now, we're talking about ten, twenty percent,
Speaker 9: sixty percent against China.
Speaker 8: So Magatue may be much greater.
Speaker 9: But we're not really sure is this just a threat
Speaker 9: or is it actually going to turn out in terms
Speaker 9: of substance.
Speaker 6: So, Bill, what we essentially have is just then corporation
Speaker 6: of tax cuts and missing out on two key pillars
Speaker 6: of Trump's policy going forward, immigration and at the same
Speaker 6: time tariffs. I know that this is a sacrilegious question,
Speaker 6: so you'll have to forgive me, but are the dots
Speaker 6: even useful this time around?
Speaker 5: Then?
Speaker 9: Well, I think what's the problem with the dots is
Speaker 9: you're going to have an an unusually rosy forecast because
Speaker 9: it doesn't include some of the more controversial economic policies
Speaker 9: that could really change the outlook with respect to growth, inflation,
Speaker 9: and proctuvity. You know, higher tariffs, deportation is going to
Speaker 9: be disruptive to the economy. It's going to tend to
Speaker 9: push inflation up, it's going to push growth down, and
Speaker 9: that's just not going to be in the forecast.
Speaker 1: At this point. Bill, what's your base case for how
Speaker 1: they're going to sort of telegraph some sort of pause
Speaker 1: or some sort of adjustment to the process of rate
Speaker 1: cuts in twenty twenty five.
Speaker 8: Well, I think I'll be done in a couple of
Speaker 8: different ways.
Speaker 9: Number One, the number of rate cuts that they show
Speaker 9: in twenty twenty five will go down from last time.
Speaker 9: Last time in September they had four ratecuts for twenty
Speaker 9: five base point ratecuts in twenty twenty five, so this
Speaker 9: time will be two or three.
Speaker 8: And second, I think poll will talk about.
Speaker 9: How inflation is a little bit sticky, the economy is
Speaker 9: doing really well. You'll probably see some upper revisions of
Speaker 9: the Fed estimates of so called urstar, the neutral rate.
Speaker 9: So I think all those things together will make it
Speaker 9: pretty clear that you know, January is probably going to
Speaker 9: be a pause, and that's really what's priced in the market.
Speaker 9: Markets are very certain about December being a cut, and
Speaker 9: they're pretty certain about January being a bass bill.
Speaker 1: What's your take if you were on the FMC, where
Speaker 1: would your dot be, what would you be looking for
Speaker 1: for next year? And what the bigger concern is inflation
Speaker 1: or weakness?
Speaker 9: Well, I think the big place where I would probably
Speaker 9: diverge from the consensus of the committee is our star.
Speaker 8: Right now, the media estimate or our star is two
Speaker 8: point nine percent.
Speaker 9: So the Feds basically show the federal funderate going to
Speaker 9: two point nine percent in the SEP not in twenty
Speaker 9: twenty five, but in twenty twenty six and twenty se
Speaker 9: twenty seven. I'd have a higher artstar probably something in
Speaker 9: the order of three and a half percent, maybe maybe
Speaker 9: a little bit of higher. So I would not have
Speaker 9: as much cumulative easing of manditary policies what the Fed
Speaker 9: will have, and.
Speaker 1: That seems to be where the market's at right now.
Speaker 1: Certainly as well as former New York Fed President Phil Dudley,
Speaker 1: thank you so much for being with us.
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