Speaker 1: Bloomberg Audio Studios, Podcasts, radio news.
Speaker 2: This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferrow, along
Speaker 2: with Lisa Bromwitz and am Marie Hordern. Join us each
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Speaker 2: Bloomberg Terminal and the Bloomberg Business App. Julian Emmanuel have evercall.
Speaker 2: Writing yesterday's CPI reinforced the three steps forward, two steps
Speaker 2: back volatile market environment that will be a part of
Speaker 2: the road to wes and p five hundred and sixty
Speaker 2: eight hundred a year end twenty twenty five. Julian joins
Speaker 2: us now for more. Julian, good morning, good morning. Now
Speaker 2: you wrote yesterday, it's not the nineteen seventies show, what
Speaker 2: is it?
Speaker 3: It's twenty twenty five, And in reality is if you
Speaker 3: think about it, every asset market has been in this
Speaker 3: incredibly volatile but range bound condition since the election, right,
Speaker 3: and so we're trying to sort through the potential for
Speaker 3: stronger growth, the potential for geopolitical shift, versus the potential
Speaker 3: for some of the policies that are being considered to
Speaker 3: be increased inflation and drags on growth. And basically the
Speaker 3: net out of it is is we're in this waiting
Speaker 3: game for further development.
Speaker 2: Can we talk about the potential for right hikes? How
Speaker 2: high is that, Bob?
Speaker 3: Extremely high? I think there are a lot of reasons. Look,
Speaker 3: first of all, expectations are still well anchored. Okay, there's
Speaker 3: a lot of volatility around the Michigan survey. The New
Speaker 3: York Fed survey is much more stable. And the reality
Speaker 3: is is that is that when Chairman Powell thinks about
Speaker 3: his legacy, which you know he he's likely to be
Speaker 3: in a different position. Let's say next year, it is
Speaker 3: wrapped up in delivering the soft landing, and a rate
Speaker 3: hike would be the thing that disturbs the potential for
Speaker 3: soft landing. And again, history will say if in fact,
Speaker 3: inflation proves to be sticky into twenty twenty six, and
Speaker 3: we don't believe that's the case. We think this is
Speaker 3: much more like last spring, where you had several months
Speaker 3: of sticky inflation and then the path of travel continued
Speaker 3: lower once again, is that the policies of the current
Speaker 3: White House would be the cause of the inflation if
Speaker 3: it were to remain sticky.
Speaker 4: Which is the reason why you wrote there's literally no
Speaker 4: plausible scenario over the Fed hikes in twenty twenty five.
Speaker 4: I love that kind of conviction at a time where
Speaker 4: everyone else seems conviction list can you put into some
Speaker 4: sort of framework how much conviction you have in the
Speaker 4: three steps forward two steps back that gives you the
Speaker 4: conviction to buy of the two steps back because you
Speaker 4: have confidence that three steps forward are going to come.
Speaker 3: Well, actually, if you think about it in first of all,
Speaker 3: look at the sentiment surveys. There's a lot of bears
Speaker 3: out there. Markets don't top when there's a lot of bears, okay,
Speaker 3: And people can say all they want about the positioning.
Speaker 3: There's still cash there. We've seen inflows and frankly the
Speaker 3: way this market trades, and yesterday is a perfect example.
Speaker 3: It looked like the sky was falling at eight thirty five,
Speaker 3: and then basically people started reassessing. And from our point
Speaker 3: of view, what was interesting is that yesterday the things
Speaker 3: that stabilize the market. Were the things that actually should
Speaker 3: have been the worst performers, technology, long duration, high multiple
Speaker 3: assets which should have been reacting badly against yields going
Speaker 3: up and their secular earnings growers.
Speaker 4: I want to pick up on what you said, which
Speaker 4: is sentiment is so bearish.
Speaker 1: A lot of people disagree with you.
Speaker 4: A lot of people say, actually positioning is pretty bullish.
Speaker 4: Rubner over Scott Rubner over at Goldman Sachs came out
Speaker 4: with this report where he said everyone is in the pool,
Speaker 4: including retail traders for one k and flows started, your
Speaker 4: allocations in corporates.
Speaker 1: You're everybody who comes on the show. Yeah, it's going
Speaker 1: to be volatile. But at the end of the day,
Speaker 1: bye bye bye.
Speaker 4: What makes you think that there's actually any bear sentiment
Speaker 4: out there whatsoever?
Speaker 3: Again, the moment to moment reactions, right, people are very
Speaker 3: quick to sell. The market bounces back because of all
Speaker 3: these reasons. And the biggest reason, which we haven't talked about,
Speaker 3: is that earnings are going to grow by ten percent
Speaker 3: this year. And when you have a condition where earnings
Speaker 3: are going to grow that kind of to that kind
Speaker 3: of degree and have fed that, look are base cases.
Speaker 3: They still cut twice. They may not cut at all,
Speaker 3: but they're not hiking. That's okay. All of that lends
Speaker 3: itself to the idea that the bull market is not over.
Speaker 1: You think they're gonna cut twice.
Speaker 5: I have to ask about potentially this being the part
Speaker 5: of the nineteen seventies that is reminiscent of a FED
Speaker 5: chair that maybe is getting under a little bit of
Speaker 5: political pressure.
Speaker 3: Look, there's no question, and I think Chair Powell was
Speaker 3: wondering whether we were replaying back to twenty eighteen in
Speaker 3: some respects, and that's a lot of the market action
Speaker 3: twenty eighteen. But from our perspective, the fact is, if
Speaker 3: you think about those numbers yesterday and you think about
Speaker 3: the FED as you know, a two sided risk factor,
Speaker 3: you know in terms of uncertainty, Well, we know one
Speaker 3: thing is certain. The FED is likely not to be
Speaker 3: relevant until June. Okay, they're just gonna wait and they're
Speaker 3: gonna ingest more data, and that takes one thing off
Speaker 3: the table. But again from our point of view, we
Speaker 3: just don't think you're going to have what we've turned
Speaker 3: an uncooperative FED, which would be a hiking.
Speaker 2: The FED doesn't want to hike. I think we're not
Speaker 2: the same. We can fill that when the communication we
Speaker 2: get from Fed officials Bank for America indicating that if
Speaker 2: you don't want to hike, don't count where the cunt's
Speaker 2: coming from. For you and a team what delivers them.
Speaker 3: It's again this idea that the stickiness of inflation that
Speaker 3: we have right now is not permanent the same way
Speaker 3: we saw it again continuous travel lower after several months
Speaker 3: of stickiness last year.
Speaker 5: And how much more complicated does that picture get though,
Speaker 5: when you have tariffs coming down the pipeline potentially today,
Speaker 5: reciprocal tariffs line by line.
Speaker 3: It gets a lot more complicated. And the offset to
Speaker 3: that is gee. I wonder if there's a bit of
Speaker 3: coincidence that the meeting between Putin and Trump that's likely
Speaker 3: to happen is happening in Saudi Arabia, you know, ground
Speaker 3: central for setting the price of oil. And when you
Speaker 3: think about why Donald Trump was elected is because the
Speaker 3: US population has been incredibly frustrated and stressed by inflation,
Speaker 3: and he set it himself prior to the election, is that,
Speaker 3: you know, the easiest lever to pull is not the
Speaker 3: price of bacon and eggs or coffee. It is oil,
Speaker 3: and so that's the calculus.
Speaker 2: The three biggest energy producers on the planet in the
Speaker 2: same place, having talks coming very.
Speaker 5: Soon, potentially very soon, and the President just set it
Speaker 5: out there.
Speaker 1: I have been talking to a lot of people.
Speaker 5: There's been preliminary discussions about this meeting potentially in Saudi Arabia, but.
Speaker 1: The President just sort of put it out there for
Speaker 1: the world.
Speaker 5: Also, next week he is going to Saudi Arabia's Sovereign
Speaker 5: Wealth Funds conference being handled in Miami. So there's a
Speaker 5: lot of overtures and olive branches between RIOD and the
Speaker 5: United States, and potentially RIOD could be that place between
Speaker 5: the Washington and Moscow.
Speaker 2: Brun creage right now negative one percent, seventy four thirty three.
Speaker 2: It's joining us now to discuss Nadia, mountsin Wigan is
Speaker 2: seiling capital. NATI. Welcome to the program. Let's talk about
Speaker 2: the developments of the past twenty four hours. What does
Speaker 2: it change for this energy market?
Speaker 6: Well, right now it's brought to the forefront that discussions
Speaker 6: are underway and that the Munich meeting from the fourteenth
Speaker 6: to sixteenth of February. The pressure is on Europe to
Speaker 6: get its act together. What we see on the market
Speaker 6: side is that equity markets are already pricing in peace
Speaker 6: in Ukraine, but when we look at the commodities markets,
Speaker 6: they are not exhibiting that same type of pressure. And
Speaker 6: you can say that oil is a bit under pressure,
Speaker 6: but if we actually had the real semblance of peace,
Speaker 6: we would be trading in the low seventies, at least
Speaker 6: the bottom of the range that we've been experiencing. We'd
Speaker 6: have much lower natural gas prices. So so far, the markets,
Speaker 6: in terms of the commodity traders, they don't believe it.
Speaker 6: Red crude is still highly backwardated.
Speaker 5: Do they not believe there'll be a peace agreement or
Speaker 5: they not believe that Russian energy will flow as it
Speaker 5: once did.
Speaker 7: Well both sides.
Speaker 6: So the first part is whether there will be a
Speaker 6: peace agreement and how quickly it's impossible for Europe to
Speaker 6: agree on how they will handle this peace agreement before
Speaker 6: the German elections that's in ten days. Then they can
Speaker 6: sit and work together and try to figure out what
Speaker 6: a peace agreement would look like, most importantly in terms
Speaker 6: of enforcement. And this is part of what the Munich
Speaker 6: Security Council has to agree because in their own notes
Speaker 6: and preparatory detail. They say they have to come up
Speaker 6: with an ironclad security guarantee that Donald Trump has said
Speaker 6: and Pete Heads have said does not include the US
Speaker 6: on the front line. So they have to agree together.
Speaker 6: In terms of the energy side, that's what the German
Speaker 6: election is really considering as well.
Speaker 7: We have the political party.
Speaker 6: The AfD, that is much more pro putin than the
Speaker 6: other parties. They are willing to step away.
Speaker 1: From NATO and they would like to have that.
Speaker 6: Energy flowing again to make German industry more competitive. Then
Speaker 6: on the flip side, you have other parties that don't
Speaker 6: trust the Russians and believe we have to build Europe
Speaker 6: going forward, and the five percent gd Fennig that can
Speaker 6: really work on the industrial engine of Europe building these arms.
Speaker 6: But right now it's a very fragmented market. Germany creates things,
Speaker 6: Norway creates things. Norway's not even part of the EU.
Speaker 6: The UK is not part of the EU. So they
Speaker 6: really have to pull themselves together. And when we see
Speaker 6: Trump's tactics, he's being very tough on his allies and
Speaker 6: asking ben to step up versus his actual adversaries.
Speaker 7: He's consistent, he's.
Speaker 6: Putting the pressure on Europe and going along listening to
Speaker 6: what Putin wants. He's being very tough on Canada in
Speaker 6: terms of tariffs compared to how he's been on China,
Speaker 6: when we know his ultimate goal is to be tougher
Speaker 6: on China. And he doesn't like that relationship between Russia
Speaker 6: in Germany being so close together. He made that very
Speaker 6: clear in Trump one point oh that he did not
Speaker 6: like this energy dependency. And Scott Besant is in Ukraine
Speaker 6: now showing that the US is open for business. They
Speaker 6: will sell oil and gas to Europe and they will
Speaker 6: take they will take in exchange as a lone rare
Speaker 6: earth minerals from Ukraine. He's a transactional president and it makes.
Speaker 1: Sense, Nadia.
Speaker 5: One adversary though Trump has been tough on is the
Speaker 5: Iranians and the crew they ship to China.
Speaker 1: When you're looking at the oil.
Speaker 5: Market, how are you starting to factor in maximum pressure
Speaker 5: that we are going to see under this administration.
Speaker 6: This is where we've really seen that playing out more
Speaker 6: on the shipping side. And Trump had a success in
Speaker 6: Trump one point one on being tough on the Iranians.
Speaker 7: So that's where the.
Speaker 6: Crude markets believe the most in the Iranian maximum pressure scenario.
Speaker 6: When we look at Russia, they are such a huge
Speaker 6: producer that Russian oil has always tended to get out somehow,
Speaker 6: even though it's in a tougher way. So on that side,
Speaker 6: we are looking at potentially a loss of one million
Speaker 6: barrels per day of production. But Trump also wants the
Speaker 6: Saudis to step in and produce more oil in that place,
Speaker 6: and the Saudis have this memory of Trump one point
Speaker 6: oh when he granted a six month grace period for
Speaker 6: countries that were taking Iranian oil, and then the Saudis,
Speaker 6: the Russians, and the American companies brought back two and
Speaker 6: a half million barrels per day of oil in anticipation
Speaker 6: of this outage of Iranian oil and crude prices collapse.
Speaker 6: So it's a much tougher negotiating tool this time to
Speaker 6: push the Saudis. Also, the Saudis have been very protective
Speaker 6: of the Russians up to now, so that relationship very important.
Speaker 6: And it's not by accident that a meaning between Trump
Speaker 6: and Putin will probably start in Saudi Arabia.
Speaker 4: Now, do you just quick here or what are the
Speaker 4: chances in your view that we could get a normalization
Speaker 4: and relationship enough with European Union nations with Russia to
Speaker 4: allow Russian liquefied natural gas to flow once again through
Speaker 4: Ukraine into the European Union.
Speaker 6: Well, right now, from a European perspective, what has been
Speaker 6: laid out in terms of peace sounds much more like
Speaker 6: a surrender for Ukraine. So there has to be an
Speaker 6: understanding that there will actually be a Ukraine and that
Speaker 6: it will be.
Speaker 2: I think we've lost the connection there. That was not
Speaker 2: the amount of work in there as fun and capital. Now,
Speaker 2: Steve Roshuta of Missia, do you want to guess around
Speaker 2: the table? Steve, let's have that conversation. Now, let's talk
Speaker 2: about the headlines we've just seen from the President. This
Speaker 2: is what we were expecting, reciprocal tarifs, and it comes
Speaker 2: to an interesting time. It comes at a time where
Speaker 2: we just had hats of that expected CPI. So let's
Speaker 2: start with CPI. What was concerning about that print for you?
Speaker 8: Well, the continuous period of the extended period at which
Speaker 8: the core CPI numbers are running on the hotter side
Speaker 8: on a year over year basis, you know, and everyone's
Speaker 8: always looking for a base effect to roll off or
Speaker 8: everyone looks in an excuse for an individual component of the.
Speaker 1: Report to drive the report.
Speaker 8: The reality is this is an index for a reason
Speaker 8: because it has to include lots of components. And when
Speaker 8: you look at a lot of the line item components,
Speaker 8: they can't even be seasonally adjusted. So we have to
Speaker 8: aggregate them in order to seasonally adjust it because they
Speaker 8: are very, very volatile, and ignoring something because it's volatile
Speaker 8: is just an inappropriate way to deal with monetary policy,
Speaker 8: to inappropriate way to deal with economics, to be honest
Speaker 8: with you.
Speaker 2: So Step one, let's accept the data. You're accepting the
Speaker 2: data for what it is. Step two, let's incorporate something
Speaker 2: into the outlook, a change in policy. Terrorists. What's the
Speaker 2: contribution of these terrists going to be in a months
Speaker 2: to come?
Speaker 8: You know, again, this is this is a difficult component
Speaker 8: because the dollar is firm and the global economy is
Speaker 8: particularly weak. You look at the response of China to
Speaker 8: the terrorists that Donald Trump has imposed again the ten
Speaker 8: percent tiers. It's a very very muted response back, and
Speaker 8: I think it reflects the fact that there is a
Speaker 8: global excess supply of tradable goods and as a result,
Speaker 8: of COVID, We've diversified supply chains, we have more excess
Speaker 8: supply of tradable goods than we've ever had before, So
Speaker 8: there is offsetting pressures. So I don't think you can say, well,
Speaker 8: we bumped this component up, therefore we're going to bump
Speaker 8: this up in the inflation component. If to look the
Speaker 8: fact that margins are going to be squeezed when it.
Speaker 5: Comes to these tariffs, do you think they will be
Speaker 5: passed on to the consumer at least a one off head.
Speaker 8: It's possible, It's not definite, and it really depends on
Speaker 8: how tight the labor market is, whether the consumer matters
Speaker 8: or it bothers the consumer. Understand what really took Joe
Speaker 8: Biden down in my assessment, is not inflation. It was
Speaker 8: the level of prices. Moreover, it was the level of
Speaker 8: price in the fact that real disposable income was squeezed
Speaker 8: under the bodied administration. So if you're in an environment
Speaker 8: where prices are going up but your income is going
Speaker 8: up and purchasing power has actually expanded, do you mind
Speaker 8: The answer is probably not. And that's the end game
Speaker 8: that I think this administration is going for.
Speaker 5: Take it one step for the Bank of America came
Speaker 5: out and said the dollar may not like taris after all,
Speaker 5: even though the dollar's been on a tear because of
Speaker 5: these tarror threats, because of full retaliation, the dollar could weaken.
Speaker 1: How vulnerable do you think the US is to retaliation?
Speaker 8: I think the global global economy, being as weak as
Speaker 8: it is, reduces the ability of people to respond back. Again,
Speaker 8: we are the buyer of last resort, and so therefore
Speaker 8: there is a certain amount of power that is imposed
Speaker 8: or implied by that. And the administration is pushing that envelope,
Speaker 8: There's no doubt about that. How long can they push it,
Speaker 8: how far can they push it? They're going to attempt
Speaker 8: to find out. But we have to understand the Federal
Speaker 8: Reserve is pushing the envelope as well. The Chairman continuously
Speaker 8: talks about the fact that he believes monetary policy is restrictive.
Speaker 8: Yet he began cutting rates when the economy was running
Speaker 8: above trend. He began cutting rates when inflation was running
Speaker 8: well above the Fed's target.
Speaker 7: So was policy really restrictive?
Speaker 8: And now we're in a situation where policy's actually more accommodative.
Speaker 4: Julian Emmanuel was on the show about fifteen minutes ago,
Speaker 4: and he had written, there is literally no plausible scenario
Speaker 4: where the Fed hikes in twenty twenty five.
Speaker 8: Do you agree there is a plausible scenario? There isn't
Speaker 8: necessarily statistically viable scenario. Okay, what I think you need
Speaker 8: to get the Fed to hike rates in twenty twenty
Speaker 8: five is the unemployment rate to move significantly below four.
Speaker 8: Put three point eight ad because once you get back
Speaker 8: to three point eight, you've basically taken all of the
Speaker 8: uptick in the unemployment rate that they responded to in
Speaker 8: cutting rates out of the equation. So therefore they don't
Speaker 8: have that argument anymore. Then you take the ten you
Speaker 8: note and see if the ten you note pushes above five,
Speaker 8: then guess what their argument that inflation expectations are anchored
Speaker 8: goes away. Then you have a reason. So you have
Speaker 8: a necessary condition the unemployment rate. You have a sufficient
Speaker 8: condition the ten note. You're not going to get the
Speaker 8: ten year note unless you get the unemployment rate. That's
Speaker 8: the key thing to what if the unemployment rate starts
Speaker 8: to move down and significantly below four, the markets will
Speaker 8: jump the gun and price it it.
Speaker 2: You know, an inflation expectations bottomed in the last twelve months.
Speaker 2: Middle of September. What happened in the middle of September
Speaker 2: feedsnat kind of interest rates?
Speaker 4: You know what fedher? J Powell said yesterday. He said
Speaker 4: that the reason why is not because of inflation expectations.
Speaker 1: He actually said that the.
Speaker 4: Increase in yields was due to other concerns, which I
Speaker 4: thought was very interesting, sort of discounting the argument that
Speaker 4: was implicit and what you just said.
Speaker 1: What do you make of that?
Speaker 2: Is he giving a nod to politics? Will be thinking
Speaker 2: about that in the middle of September.
Speaker 1: He's saying, it's not my fault. Don't look at me.
Speaker 2: Adam Posen at the Pediston Institute joined us in about
Speaker 2: sixty minutes. I think you might have a different view
Speaker 2: on things. Steve A shuddo, Steve, it's going to see us.
Speaker 2: It's always thank you. Andrew Homhols of City. Andrew, you've
Speaker 2: had in the books for a while that you expect
Speaker 2: the Federal Reserve will reduce interest rates this year. I
Speaker 2: believe you think it's going to happen now sometime later
Speaker 2: on in the spring, around May time. How does this
Speaker 2: CPI number of yesterday and PPI this morning help your case.
Speaker 9: Yeah, this definitely still is all in the column of
Speaker 9: the Fed is not in a hurry to reduce interest rates.
Speaker 7: That's what we've heard from Cha Powell.
Speaker 9: That's what we saw the January FMC meeting and in
Speaker 9: congressional testimony. So they're going to need to see some
Speaker 9: more evidence that inflation is cooling. I think they will
Speaker 9: get some of that in the PCEE reading. Now, you
Speaker 9: want to be careful here. We have CPI, we have
Speaker 9: pce we have year on year, we have three months.
Speaker 9: You can look at all these different metrics on inflation.
Speaker 9: When you dig down into the details, the fact that
Speaker 9: shelter inflation is slowing down, I think that is going
Speaker 9: to give Fed officials confidence that we're getting some slowing
Speaker 9: in terms of what this.
Speaker 7: PPI number means.
Speaker 9: I think part of the reason the market is reluctant
Speaker 9: to react is you really have to look at these
Speaker 9: detailed categories and how they're going to play into that
Speaker 9: PCEE reading that I think is going to be softer
Speaker 9: than the CPI reading we saw yesterday.
Speaker 2: Well, Andrea trustand the details. Then, when you think about
Speaker 2: the sources of inflation, energy, labor, goods, services, what do
Speaker 2: you think the source of disinflation will be through the
Speaker 2: next year or so.
Speaker 9: I think the single biggest factor that is causing me
Speaker 9: to be confident and I think will cause beneficials to
Speaker 9: be confident that inflation is slowing is a slowdown in
Speaker 9: shelter prices. Again, even though we saw it stronger overall
Speaker 9: reading for CPI inflation, we saw shelter prices that were
Speaker 9: slower yesterday, And if you look at what was strong
Speaker 9: in the CPI reading, it was really things like motor
Speaker 9: vehicle insurance used car prices. These are more volatile categories
Speaker 9: and categories that don't get in some cases as high
Speaker 9: a weight in the PCE reading. So I think we'll
Speaker 9: see some volatility in CPI, but that through line, as
Speaker 9: Chicago Fed President Gulesby would say, is still lower in inflation.
Speaker 4: What would you have to see, Andrew to change your
Speaker 4: view that maybe this is something that's a bit stickier.
Speaker 7: Yeah, So what.
Speaker 9: Would be concerning is if you saw just a lot
Speaker 9: of visual strength in wages and in services prices. Now,
Speaker 9: we still have somewhat elevated wage growth, but it looks
Speaker 9: to be cooling.
Speaker 7: We know the labor market has softened. Maybe it's kind of.
Speaker 9: Stabilized more recently, but softened before stabilizing.
Speaker 7: That should all mean that we get a glide down.
Speaker 9: In wages, we get a glide down in services price pressure.
Speaker 9: If we're wrong about that and you were to see
Speaker 9: wage growth that was actually picking up again, that's where I.
Speaker 7: Would get concerned.
Speaker 9: That's where I think FED officials would get concerned.
Speaker 4: That's the reason why that was the number that people
Speaker 4: looked at in the jobs report, the payrolls report.
Speaker 1: That we got last Friday, Although.
Speaker 4: It was explained away by the hours worked going down.
Speaker 4: I am curious about which aspects people are hoding in
Speaker 4: on that are not necessarily inflationary when you have fairly
Speaker 4: broad based inflationary pressure. People had theorized that you would
Speaker 4: get this disinflation in services that was enough to offset
Speaker 4: a reinflation in goods. It doesn't seem like that's happening
Speaker 4: to the same degree people previously expected.
Speaker 1: Why do you dismiss that?
Speaker 9: Well, I think shelter services are on track. The non
Speaker 9: shelter services that is where we should be concerned. And
Speaker 9: again it's this whole issue of wage pressure labor markets
Speaker 9: and does that bubble up into services prices.
Speaker 7: We saw that again in the January reading.
Speaker 9: This what we call residual seasonality, where people increase prices
Speaker 9: at the beginning of the year and they increase prices
Speaker 9: by more at the beginning of the year, and we
Speaker 9: get these really strong January readings. So I'm really looking
Speaker 9: to see not just in the January inflation number, but
Speaker 9: what do we see in February, what do we see
Speaker 9: in March. I think those services prices are going to
Speaker 9: cool again in February and March.
Speaker 7: They were cooler in November and December.
Speaker 9: So if you put together, you know, five out of
Speaker 9: six months that's cooler there, and you have wages that
Speaker 9: are slowing.
Speaker 7: That's a pretty good picture for the Fed. We have
Speaker 7: to watch these next couple of reports, Andrew.
Speaker 2: Today's the big one, apparently reciprocal tariffs. We've had this
Speaker 2: conversation about inflation with that so much about trade now, Andrew,
Speaker 2: you've got as a baseline interest rate reductions for twenty
Speaker 2: twenty five. How do you think about tariffs and the
Speaker 2: potential feed through into higher prices. We've got ten percent
Speaker 2: on China, we could have more still to count.
Speaker 9: Yeah, so the details are what are really going to
Speaker 9: matter here. And we don't know the details. I do
Speaker 9: expect we're going to get some kind of broad based tariff.
Speaker 9: That's been pre core to the Trump administration messaging to
Speaker 9: their economic policy. They need that both for incentive to
Speaker 9: produce in the US as well as to raise revenue.
Speaker 9: The question is are there any carveouts to those tariffs?
Speaker 9: Are we including Canada and Mexico. That's almost thirty percent
Speaker 9: of trade if you include or exclude Canada and Mexico,
Speaker 9: so that makes a big difference. Also, are there carveouts
Speaker 9: for certain products That can make a big difference because
Speaker 9: some products you would expect those tariffs to be almost
Speaker 9: fully passed through into consumer prices. Most tariffs, most products
Speaker 9: you would expect those tariffs would not be fully passed through,
Speaker 9: so the inflationary effect will be less the more you
Speaker 9: get carve outs and the more you focus on those
Speaker 9: products where.
Speaker 7: You get less passed through.
Speaker 9: If the inflationary impetus is not too great, then I
Speaker 9: think FED officials can say it's a one time price
Speaker 9: level increase, it's not an inflationary pressure issue. The challenge
Speaker 9: for the FED is going to be if inflation is
Speaker 9: not otherwise slowing, can you say that, So I think
Speaker 9: you need inflation to be slowing down just by basic
Speaker 9: macro economic dynamics, then you need these tariffs to not
Speaker 9: be too great an extent, then you will get a
Speaker 9: limited FED reaction.
Speaker 2: Andrew, that sounds a lot like transitory and that argument's
Speaker 2: not a good one these days, even if they think
Speaker 2: it's the right one. You saw back in the middle
Speaker 2: of September, the inflation expectations bottomed. At least market perception
Speaker 2: of inflation expectations, Andrew, the FED share is least appointed
Speaker 2: out chair and Power kind of pushed back at the
Speaker 2: idea that they contributed to higher inflation expectations with one
Speaker 2: hundred basis points of rate reductions. Andrew, can I get
Speaker 2: your thoughts on that? Just to wrap up, do you
Speaker 2: think they did contribute to high inflation expectations.
Speaker 9: I think it wasn't so much the FED rate cuts.
Speaker 9: I think it's more the expectation of teriffs. We see
Speaker 9: that in the consumer surveys where people say they're worried
Speaker 9: that prices on durable goods are going to go up.
Speaker 9: So I would see that as more terraff related, and
Speaker 9: it's the short term expectations. One of your expectations, not
Speaker 9: the long term expectations that FED officials.
Speaker 7: Would worry about more.
Speaker 2: Andrew, I appreciate it. Thank you, Sir, Andrew hanhost, Then
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