WEBVTT - Veronica Clark Talks Market Expectations for 2026

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<v Speaker 1>Bloomberg Audio Studios, Podcasts, radio News.

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<v Speaker 2>We continue to expect another slight increase in the unemployment

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<v Speaker 2>rate to four point seven percent in December. Veronica joins us. Now, Veronica,

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<v Speaker 2>thank you so much for being here, Thanks for having

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<v Speaker 2>me holiday. Wondering from your perspective how much the data

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<v Speaker 2>that we got earlier this month was actually valid and

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<v Speaker 2>that people are discounting it too much.

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<v Speaker 1>Yeah, I think there's a lot of that going on.

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<v Speaker 1>And if we saw the unemployment rate next Friday, the

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<v Speaker 1>first week back back to work, if we saw that

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<v Speaker 1>at something like four point seven, I think people will

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<v Speaker 1>believe it a lot more, because, yeah, there's a lot

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<v Speaker 1>of issues with the November October data. We don't know

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<v Speaker 1>how much the government shut down affected new measurement of

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<v Speaker 1>those months, but December should be relatively clean, and if

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<v Speaker 1>it stays pretty high, I think that's a more concerning

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<v Speaker 1>sign for people.

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<v Speaker 3>How Come this labor market is weak? I don't get it,

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<v Speaker 3>because you've got incredible earnings growth, right, so corporate the

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<v Speaker 3>mayor is doing very well, and there are no new

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<v Speaker 3>people coming into this country, right, there's no immigration. The

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<v Speaker 3>demographics trend like everyone's old. There are no young people

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<v Speaker 3>like it should be companies are fighting for employees.

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<v Speaker 2>Yeah.

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<v Speaker 1>Yeah, I mean there's been this issue of you know,

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<v Speaker 1>is it labor supply is it labor demand. We've been

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<v Speaker 1>dealing with us for a couple of years now. You know,

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<v Speaker 1>back in twenty twenty four, when we saw the unemployment

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<v Speaker 1>rate increase, the excuse was also, it's more immigration. I

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<v Speaker 1>don't think we can use immigration to explain the bad data.

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<v Speaker 1>You know, different sides of immigration to explain bad data.

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<v Speaker 1>But I think what's happened is that labor demand has

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<v Speaker 1>just weakened more than labor supply, and that's why you've

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<v Speaker 1>seen the unemployment rate rising. It's this low hiring still

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<v Speaker 1>low firing dynamic. But I would be worried that low

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<v Speaker 1>hiring can only last for so long before maybe you

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<v Speaker 1>do see some layoffs.

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<v Speaker 3>Is that because technology and AI have made the few

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<v Speaker 3>employees that companies hold on to more productive.

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<v Speaker 1>I'm a little hesitant to conclude that that's what's happening now.

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<v Speaker 1>That might be part of the story, absolutely, and we

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<v Speaker 1>could see larger productivity gains from AI longer run. But

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<v Speaker 1>this really started a couple of years ago. This really

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<v Speaker 1>started maybe summer of twenty twenty three when we saw

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<v Speaker 1>this pullback and hiring, and I do worry that it

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<v Speaker 1>started in more rate sensitive sectors like manufacturing small businesses.

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<v Speaker 1>The pullback has really been there. And so yeah, it

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<v Speaker 1>doesn't necessarily matter if equities are doing well in earnings

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<v Speaker 1>or find small businesses are going to be more rate sensitivenfacturer.

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<v Speaker 3>I thought we're bringing manufacturing that we have.

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<v Speaker 1>Been losing manufacturing jobs I think every month this year,

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<v Speaker 1>but that predates this year also, and it is a

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<v Speaker 1>rate sensitive sector.

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<v Speaker 2>Well, this sort of speaks to the question of is

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<v Speaker 2>the FED restrictive and this is the big debate restrictive

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<v Speaker 2>for who? Because on one hand, you do see companies

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<v Speaker 2>filing for bankruptcy at the fastest clip going back to

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<v Speaker 2>twenty twenty. On the flip side, you see AI companies

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<v Speaker 2>screaming ahead, digital Bridge being purchased for four billion dollars

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<v Speaker 2>at a fifteen percent being. So can you square that?

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<v Speaker 1>Yeah, I mean there's this fifurcation across all parts of theomy.

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<v Speaker 1>And I think there's a lot you know that has

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<v Speaker 1>already been said about the k shape economy for consumers.

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<v Speaker 1>You know, higher income consumers are spending, but We definitely

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<v Speaker 1>see that in sectors also, and you know, the smaller

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<v Speaker 1>businesses who are more rate sensitive. I think rates are

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<v Speaker 1>are restrictive here, so.

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<v Speaker 2>You expect a significant number of rate cuts. Let's just

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<v Speaker 2>postulate that we do see an increase further in the

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<v Speaker 2>unemployment rate to four point seven percent as you expect.

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<v Speaker 2>What does that mean for January twenty eighth.

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<v Speaker 1>Yeah, I think they're going to be cutting really Yeah,

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<v Speaker 1>so we are penciling in another cut in January, another

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<v Speaker 1>one in March. And it's just this kind of idea

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<v Speaker 1>that you've clearly gotten more concerned on the labor market

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<v Speaker 1>side of your mandate. If the unemployment rate is something

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<v Speaker 1>like four to seven that we think we'll see in December,

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<v Speaker 1>we will have hopefully more inflation data by March that

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<v Speaker 1>we trust again, you know, early twenty twenty six data.

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<v Speaker 1>If you're seeing inflation slowing and data that you believe again,

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<v Speaker 1>and you're less concerned on the inflation side of the mandate,

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<v Speaker 1>you're more concerned on employment, why wouldn't you be at

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<v Speaker 1>the midpoint of neutral, which would be cuts in January

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<v Speaker 1>in March to get either.

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<v Speaker 2>The counter argument is if you get rate cuts, potentially

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<v Speaker 2>two by the end of March. At the same time

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<v Speaker 2>that you have the one big beautiful bill, the tax

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<v Speaker 2>refunds and potentially an additional two thousand dollars stimulus or

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<v Speaker 2>whatever else might be coming down the pike, Don't you

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<v Speaker 2>risk reigniting inflation that never died.

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<v Speaker 1>Yeah, I'm not so concerned about that right now. You know,

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<v Speaker 1>the inflation driven by lower rates more stimulative monetary policy,

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<v Speaker 1>you'd expect to see it first in a sector like housing,

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<v Speaker 1>and you definitely don't see that yet. You don't see

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<v Speaker 1>those signs yet. Home prices have been slowing, new rents

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<v Speaker 1>have been slowing a lot. We already know that in

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<v Speaker 1>the inflation data. There is this lag issue of shelter

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<v Speaker 1>inflation that's going to I think, be slowing all of

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<v Speaker 1>next year. All of the potential fiscal stimulus, you know,

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<v Speaker 1>maybe larger tax refunds, the business tax incentives that were

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<v Speaker 1>part of the bill from the summer. Those can help

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<v Speaker 1>support growth. But I would worry that the main determinant

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<v Speaker 1>of if people are spending or not is if they

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<v Speaker 1>have a job and what their labor income is, and

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<v Speaker 1>that we have seen slowing already, and you would think

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<v Speaker 1>consumption with Slothan.

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<v Speaker 2>Too, Veronica Clark, Thank you so much for being gared

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<v Speaker 2>for holding down the fort for the economics team at Citigroup.

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<v Speaker 2>Veronica Clark of Citygroup Global Markets