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Speaker 1: Bloomberg Audio Studios, podcasts, radio news joining us.

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Speaker 2: Now, I'm really anticipating this with the Dow up one

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Speaker 2: hundred points. Julia Cornado was iconic at BMP Perry Bad

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Speaker 2: during the crash where she said, no, GDP isn't going

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Speaker 2: to be as good as it's going to be. She

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Speaker 2: nailed that call. Now with macro policy perspectives, one of

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Speaker 2: our most astute FED watchers as well, Julia, is the

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Speaker 2: next thing we're going to get wrong the certitude that

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Speaker 2: it's one and done on a rate cut, and what

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Speaker 2: we really need to think about is sequential rate cuts

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Speaker 2: in the next year.

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Speaker 1: Well, Tom, I think actually the possibilities are fairly bimodal.

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Speaker 1: So if you look at the market and what it's

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Speaker 1: priced for, it's priced for several rate cuts next year.

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Speaker 1: But I think either we're going to get one and

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Speaker 1: done because things are stabilizing and growth is going to

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Speaker 1: be okay and the AI story has enough legs to

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Speaker 1: power the economy, or we're really starting, you know, we're

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Speaker 1: in the early game turning of the labor market, and

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Speaker 1: the FED is going to have to cut not just

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Speaker 1: to neutral, but through to neutral to an accommodate. Interesting

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Speaker 1: so it's one or the other. It feels like, to me,

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Speaker 1: you're so good.

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Speaker 2: At gaming GDP, my head is spinning. Paul Sweeney's head

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Speaker 2: is spinning over nominal GDP. I got a four percent

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Speaker 2: Atlanta GDP. Now maybe it's three point eight percent. I

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Speaker 2: got half of America flat on their back. What is

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Speaker 2: the Coronado call for twenty twenty six real and nominal GDP?

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Speaker 1: So, first, if we start with the second half of

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Speaker 1: this year, we have a read on Q three and

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Speaker 1: by all indications, it's very solid, but early indications are

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Speaker 1: Q four is that it's kind of squishy. The consumer

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Speaker 1: auto sales have drapped. I'm not sure what Dana told

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Speaker 1: you on the holiday season, but people seem to be

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Speaker 1: price sensitive, price conscious, budget conscious, not hunkered down in

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Speaker 1: a corner, but not booming. And so I think we're

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Speaker 1: going to see strong Q three subdued Q four on average,

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Speaker 1: we'll see an economy that is downshifted from last year

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Speaker 1: on balance in twenty twenty five. And one of the

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Speaker 1: reasons this is happening is structural. We've chosen a restrictive

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Speaker 1: immigration policy that means basically no labor supply, So no

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Speaker 1: labor supply, no jobs, less growth in paychecks and income,

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Speaker 1: and a slower economy. And I think that that will

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Speaker 1: prevail into twenty twenty six, a lower trend growth rate

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Speaker 1: for the US, even assuming some solid productivity tailwinds. You're

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Speaker 1: still looking at growth with a one handle, maybe a

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Speaker 1: low two handle, not a three handle, Julia.

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Speaker 3: So what do you think is receiving the priority from

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Speaker 3: the Federal Reserve these days? The labor market, the inflation

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Speaker 3: environment here. Is there one thing that's front and center

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Speaker 3: for the Fed here today?

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Speaker 1: Well, it depends on who you ask, doesn't it. So

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Speaker 1: there are a lot of people. There's nineteen people on

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Speaker 1: the committee, and they all have very different views of

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Speaker 1: the world. It looks like the leadership Chair Powell, President

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Speaker 1: Williams are coalescing around one more rate cut this year,

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Speaker 1: an insurance rate cut, because you're highlighting the tension they face.

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Speaker 1: You've got inflation that's not soaring or even necessarily accelerating

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Speaker 1: in a meaningful way like we saw in the pandemic,

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Speaker 1: but it's too high. It's running it closer to three

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Speaker 1: percent than two percent, and it's not making any progress.

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Speaker 1: And we don't expect any progress in the foreseeable future,

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Speaker 1: or at least not next year. Not much progress given

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Speaker 1: the tariffs are still coming through.

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Speaker 2: A worry.

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Speaker 1: Not that inflation's getting out of control, but it's going

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Speaker 1: to get embedded in the economy and people's behavior, in

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Speaker 1: people's psychology, and we'll get stuck at three and not

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Speaker 1: get to two. On the other hand, the unemployment rate's

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Speaker 1: been creeping higher by a tenth each of the last

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Speaker 1: four months. Usually when we see this kind of movement,

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Speaker 1: we get a break higher in the unemployment rate, the

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Speaker 1: labor market cracks, we reach a tipping point, and all

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Speaker 1: of the sudden we're looking at a recession.

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Speaker 2: Can we do a Friday audible short on television on

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Speaker 2: radio worldwide with Julia Coronado a surveillance audible. Okay, Julia,

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Speaker 2: you're defined at Dallas FED. Dallas FED owns the southern border.

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Speaker 2: I am as guilty as anyone of ignoring Mexico and

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Speaker 2: focusing on Canada because they need the Montreal Canadians to

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Speaker 2: find an enforcer. Julia, help me with Mexico and the tariff.

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Speaker 2: What's the dynamic right now with Mexico given tariffs.

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Speaker 1: You know, Mexico had been poised to be a beneficiary

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Speaker 1: from this friend shoring or these reglobalizations or deglobalizations in

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Speaker 1: the sense that it's you know, right next door. It's

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Speaker 1: one of our largest trading partners. But the Trump administration

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Speaker 1: has you know, gone after our closest trading partners, Canada

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Speaker 1: and Mexico, you know, really kind of trying to ensure

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Speaker 1: that some of that that channeling of trade by Chinese

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Speaker 1: companies through Mexico doesn't sort of sneak in the door.

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Speaker 1: But of course that leaves Mexico really struggling. Mexico's doing okay,

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Speaker 1: but they just put out their growth forecast and it's

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Speaker 1: pretty subdued for next year. So the trade wars, the

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Speaker 1: immigration policy, the frictions between the US and Mexico are

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Speaker 1: not great for the Mexican economy and are not great

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Speaker 1: for Texas. To be honest, Texas is okay, but usually

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Speaker 1: Texas is a bright shining star. I'm living here in Austin,

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Speaker 1: and you know, the Texas economy is it's okay, but

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Speaker 1: it's it's not the bright shining spot it used to be.

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Speaker 1: Because all of these things, the trade wars, the immigration policy,

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Speaker 1: really do hit Texas hard too.

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Speaker 3: Interesting We're talking about the unemployment rate, it's at four

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Speaker 3: point four percent. I believe right here is there a number,

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Speaker 3: Julia where the Fed just says, oh boy, we've got

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Speaker 3: a labor problem.

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Speaker 1: Well, I think, you know what, we're above their longer

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Speaker 1: run estimate of four point two percent. I think once

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Speaker 1: we start heading north of four and a half. And

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Speaker 1: it's not just the level, the level matters. So I

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Speaker 1: think we're at a level that's a little worrisome. When

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Speaker 1: we were saw the unemployment rate rising last summer, we

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Speaker 1: were rising from such a low level that it was

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Speaker 1: kind of hard to worry too much about it. Right,

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Speaker 1: we were going from three point four to the low fours.

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Speaker 1: That is sort of more of a normalization in conditions

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Speaker 1: than a weakening. Now we're at the low fours. We're

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Speaker 1: at sort of neutral or longer run, and we're rising

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Speaker 1: from here to a labor market that's clearly loosening. If

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Speaker 1: you look at like say the Conference Board survey of consumers,

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Speaker 1: consumers are getting gloomy about the labor market. If you

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Speaker 1: look at nominal wage growth, the indeed wage trackers, what

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Speaker 1: we have in a most timely basis showing wage growth

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Speaker 1: decelerating below the rate of inflation. These are indications that

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Speaker 1: the labor market is not just balanced but weak.

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Speaker 2: She's got me going here now, I tell you, I'm

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Speaker 2: tmpercellies over at Pgium. Do you know even in the

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Speaker 2: cold weather, he takes the Hinckley picnic boat, doesn't down

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Speaker 2: the Hudson River to go to Pigum in Jersey City. Okay,

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Speaker 2: you just said that, Julia. The real wage is flatlining, declining.

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Speaker 2: However you want to describe it as well. You're telling

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Speaker 2: me the FED is going to look at that and

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Speaker 2: ignore it to worry about inflation dynamics. I don't buy

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Speaker 2: it for a minute.

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Speaker 1: No, no, and you shouldn't because if this continues, then

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Speaker 1: the FED will cut, and it will cut in. It's

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Speaker 1: poised to cut in December for exactly that reason. When

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Speaker 1: we saw the September labor report, we said, going in,

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Speaker 1: the most important number is the unemployment rate. Forget payrolls,

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Speaker 1: they're overstated, they haven't been benchmark, blah blah blah, seasonal noise.

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Speaker 1: Look at the unemployment rate and it went up and

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Speaker 1: nobody expected it to go up. So that was the news.

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Speaker 1: The news was the labor market is weakening. The FED

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Speaker 1: is a go uh, and that looks to be where

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Speaker 1: they've landed. And yeah, I think Tom that the trick

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Speaker 1: is the Committee is in such a hawkish mood because

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Speaker 1: the GDP tracking is so strong and the economy seems

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Speaker 1: basically okay, the stock markets at the highs, So what's

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Speaker 1: the big deal. Meanwhile, I've got an inflation problem. But

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Speaker 1: if this labor market problem keeps creeping creeping in and

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Speaker 1: those cracks deepening, of course the Fed is going to

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Speaker 1: pay attention to that.

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Speaker 2: Now up ninety one, John from Coventry Emails instans don't

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Speaker 2: quote the Dow, I said, no, I'm going to quote

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Speaker 2: the Dove Stow up ninety three points right now. Julia

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Speaker 2: cordinaut with us, Julia. Everybody wants to know this, and

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Speaker 2: this is great work off XEOS and the Texas A

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Speaker 2: and M Transportation Institute. Julia. The traffic in Austin, the

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Speaker 2: traffic in Houston, the traffic in Texas. Why is Texas's

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Speaker 2: great mecca? If you can't turn left to four pm?

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Speaker 1: The traffic in Texas is terrible because we have no

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Speaker 1: public transportation, We have no trains. It's the thing I

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Speaker 1: missed the most about New York is the ability to

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Speaker 1: skip traffic and get on the subway or get on

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Speaker 1: the Metro North and go home. So yeah, what do

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Speaker 1: you care about?

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Speaker 2: What are you going to do about it? You're you've

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Speaker 2: been shortlisted for all sorts of wonderful Washington titles. What

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Speaker 2: is the entrepreneur aurial GOP spirit of Texas gonna do

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Speaker 2: with that gridlock?

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Speaker 1: I don't know. You know, we we did pass the

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Speaker 1: Austin area, did pass a big bond that does build

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Speaker 1: in some public transportation. It broadens what is now a

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Speaker 1: very limited train system. But being Texas, we also are

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Speaker 1: just kind of expanding the highway yet again. So if

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Speaker 1: you come down to Texas, Tom, you can choose many

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Speaker 1: multiple lane highways to get around on. It's really something

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Speaker 1: the highway system.

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Speaker 2: Here, Julie. The only reason we had you on was

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Speaker 2: Hullabadou Kanuck Kanuck. Today seven thirty pm, the number sixteen

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Speaker 2: Texas Longhorns greet the number three fighting Texas Aggy Wow

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Speaker 2: of College Station. Julia, Are you going?

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Speaker 1: I am not going to the game. No, no, no,

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Speaker 1: no no, But I am a Longhorn thom As. You know,

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Speaker 1: we have not had the season we had hoped for.

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Speaker 1: But you know we had a great last game and

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Speaker 1: hopefully that momentum continues into this one.

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Speaker 2: Very good for Jess Metting of college Stations as we

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Speaker 2: say good morning as well Julia. Next time I'll have

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Speaker 2: you one on economics instead of a longhorn no doctor deal,

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Speaker 2: Doctor Cornado, thank you so much. Important comments there on

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Speaker 2: the Fed