WEBVTT - Bloomberg Surveillance TV: May 22, 2024 0:00:00.120 --> 0:00:06.760 Bloomberg Audio Studios, Podcasts, radio news. 0:00:11.640 --> 0:00:15.440 This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferrow, along 0:00:15.480 --> 0:00:18.680 with Lisa Bromwitz and Amrie Hordern. Join us each day 0:00:18.720 --> 0:00:22.280 for insight from the best in markets, economics, and geopolitics 0:00:22.400 --> 0:00:24.920 from our global headquarters in New York City. We are 0:00:24.920 --> 0:00:27.680 live on Bloomberg Television weekday mornings from six to nine 0:00:27.720 --> 0:00:31.240 am Eastern. Subscribe to the podcast on Apple, Spotify or 0:00:31.320 --> 0:00:33.960 anywhere else you listen, and as always on the Bloomberg 0:00:34.040 --> 0:00:36.920 Terminal and the Bloomberg Business app. Errent's with us around 0:00:36.960 --> 0:00:38.960 the table eron good morning to you, Good morning you send. 0:00:39.000 --> 0:00:41.280 The bar is a little bit too high. Maybe finnuations 0:00:41.280 --> 0:00:43.519 are a little bit too stretched straight side around this scene. 0:00:43.640 --> 0:00:46.440 So I don't think that valuations are actually that stress 0:00:46.280 --> 0:00:48.479 that stretched at this point, and I think that that 0:00:48.560 --> 0:00:50.520 might be a little bit of a shock to say. 0:00:50.600 --> 0:00:51.920 But at the same time, if you look. 0:00:51.760 --> 0:00:54.680 At we're in the videos trading a couple of years ago, 0:00:54.720 --> 0:00:56.720 three years ago was treating at about thirty one times 0:00:56.800 --> 0:00:59.560 I was trading at that same valuation today. That said, 0:00:59.560 --> 0:01:02.160 there's a lot of attention with the stock up as 0:01:02.240 --> 0:01:05.000 much as it is year to date, all eyes have 0:01:05.120 --> 0:01:08.280 been on Navidia, and I actually think that there's opportunities 0:01:08.280 --> 0:01:11.560 outside of just Navidia to play the AI theme, and 0:01:11.640 --> 0:01:16.399 so I like looking under the surface more less discovered names. 0:01:16.480 --> 0:01:18.840 Well, let's get to opportunities in a second. Let's talk 0:01:18.840 --> 0:01:20.880 about what people have been doing stateside. They've been looking 0:01:20.920 --> 0:01:23.160 to utilities. They're up eight percent month to day. Yes, 0:01:23.280 --> 0:01:24.840 when we think about what's at risk a little bit 0:01:24.920 --> 0:01:27.480 later on this afternoon, is it just the semis, the chips, 0:01:27.520 --> 0:01:29.640 the whole attack, or is it the whole of this market. 0:01:29.959 --> 0:01:33.200 Well, so, the utility names that have been really the 0:01:33.200 --> 0:01:35.880 ones in the firing line for people buying right now 0:01:35.959 --> 0:01:38.440 have been the ones that are more IPPs, that are 0:01:38.480 --> 0:01:42.520 more independent producers, that have the ability to really lean 0:01:42.560 --> 0:01:45.199 into the AI theme, and that's really brought the entire 0:01:45.319 --> 0:01:47.600 utility market up. I actually think this is one of 0:01:47.600 --> 0:01:50.160 the sweet spots of the market's utilities have been under 0:01:50.200 --> 0:01:53.520 owned for a very long time. Throughout most of last year, 0:01:53.800 --> 0:01:57.920 they've underperformed pretty significantly. I think now with rates starting 0:01:57.960 --> 0:02:01.000 to peak and with the FED likely starting to cut 0:02:01.000 --> 0:02:03.760 at least towards a up latter part of this year, 0:02:03.880 --> 0:02:07.400 utilities will look really attractive. That said, yes, if Navidia 0:02:07.440 --> 0:02:10.240 goes down today, the whole market's going down, I think 0:02:10.240 --> 0:02:12.680 that that's probably a short term dip, and you likely 0:02:12.800 --> 0:02:16.600 buy because right now it's just about playing the expectations 0:02:16.600 --> 0:02:18.919 of the rollout of the next chip and the GPU 0:02:19.040 --> 0:02:21.040 for a Navidia versus what we know is going to 0:02:21.040 --> 0:02:24.240 be a very strong earnings picture over the next couple 0:02:24.280 --> 0:02:25.280 of years for the company. 0:02:25.360 --> 0:02:28.440 I'm hoping Jensen Huang actually clarifies how you pronounce the name, 0:02:28.480 --> 0:02:31.000 because I hear people say Navidia and I hear people 0:02:31.040 --> 0:02:32.600 say in Nvidia, and it would be very nice for 0:02:32.639 --> 0:02:34.600 me to decide which one we're actually going to be 0:02:34.600 --> 0:02:37.680 talking about. You're talking about industrial policy fueling some of 0:02:37.680 --> 0:02:40.480 these ideas in terms of utilities, in terms of just 0:02:40.520 --> 0:02:43.720 industrial stocks more generally. Has that trade basically been played 0:02:43.720 --> 0:02:46.280 in the US, and now it's really outside of this 0:02:46.720 --> 0:02:50.160 country that you're seeing new industrial policy put into place 0:02:50.520 --> 0:02:51.760 and not yet fully priced. 0:02:52.080 --> 0:02:54.560 So the first answer is no, it has not been 0:02:54.600 --> 0:02:58.200 fully priced in the US yet. With respect to the 0:02:58.320 --> 0:03:01.959 utility usage, the power usage, the water usage that's going 0:03:02.000 --> 0:03:05.720 to be needed to fuel the AI revolution that the 0:03:05.840 --> 0:03:08.919 US is envisioning it's going to acquire a lot more 0:03:09.040 --> 0:03:12.040 infrastructure and build out into really the picks and the 0:03:12.080 --> 0:03:15.240 shovels of the AI trade. Who's going to be providing 0:03:15.280 --> 0:03:18.639 the grid lines, the power lines, the water for the cooling, 0:03:18.960 --> 0:03:21.720 all of that I think is still very early stages. 0:03:22.200 --> 0:03:26.080 That said, while the US at least has some focus 0:03:26.160 --> 0:03:29.680 on this sort of industrial policy going forward, you look 0:03:29.720 --> 0:03:32.120 at Europe and you look at outside of the US, 0:03:32.160 --> 0:03:34.359 and we're in very very early stages. 0:03:34.440 --> 0:03:37.040 So I think we are likely to see a. 0:03:37.000 --> 0:03:40.200 Lot more investment and a lot more focus from a 0:03:40.440 --> 0:03:43.600 government side in terms of being able to provide the 0:03:43.640 --> 0:03:47.560 infrastructure in order to fuel the revolution that AI is coming. 0:03:47.680 --> 0:03:50.360 Do you have any angst or concern that people are 0:03:50.400 --> 0:03:53.400 maybe getting a little too excited about infrastructure week on repeat, 0:03:53.520 --> 0:03:55.200 just this idea. We were talking to Jack Caffrey of 0:03:55.280 --> 0:03:58.640 JP Morgan earlier this week and he said, it takes 0:03:58.800 --> 0:04:01.400 years to even get the perm let alone the actual 0:04:01.440 --> 0:04:03.960 picks in the ground, and people are using this to play. 0:04:03.960 --> 0:04:05.920 They're using copper as a play, but we're not seeing 0:04:05.960 --> 0:04:07.320 the economic activity to back it up. 0:04:07.360 --> 0:04:08.720 It probably won't for a very long time. 0:04:08.800 --> 0:04:12.440 What's your fear factor with sort of overpricing at this point. 0:04:12.600 --> 0:04:14.760 So I think that's a huge concern right now. 0:04:14.800 --> 0:04:17.640 I think that the market in some respects has run 0:04:18.080 --> 0:04:20.960 ahead of itself on the cyclical impacts that this is 0:04:21.000 --> 0:04:23.200 going to be, not on the secular so I think 0:04:23.240 --> 0:04:26.200 they've probably frontloaded a lot of the performance this is 0:04:26.320 --> 0:04:28.479 likely to play out over not just the next three 0:04:28.520 --> 0:04:30.560 to five years, but really over the next ten to 0:04:30.600 --> 0:04:33.479 twenty years. And so yes, I think that there has 0:04:33.560 --> 0:04:36.560 been a lot of optimism priced in in the short end, 0:04:36.960 --> 0:04:39.680 but I think that you will see earnings continue to 0:04:39.720 --> 0:04:43.359 inflect higher. You are starting to see real ramps in 0:04:43.400 --> 0:04:45.679 some of these new chips which are going to require 0:04:45.720 --> 0:04:50.560 a lot more power usage over the near term. And 0:04:50.600 --> 0:04:54.880 the challenges is that there's significant capacity constraints in terms 0:04:54.920 --> 0:04:58.480 of regulation hurdles in order to build out new power supply, 0:04:58.839 --> 0:05:02.159 and that's going to create I think prices keep prices 0:05:02.200 --> 0:05:05.000 elevated over the short term. But certainly there's a lot 0:05:05.040 --> 0:05:07.960 of sentiment that's positive right now, and so we're being 0:05:08.080 --> 0:05:10.640 very selective in terms of being dynamic in terms of 0:05:10.680 --> 0:05:12.400 how we're trading these stocks right now. 0:05:12.560 --> 0:05:14.279 You like the United States, you're looking at Europe, what 0:05:14.320 --> 0:05:16.159 about Asia where we see a lot of build out 0:05:16.320 --> 0:05:18.640 in the semiconductor supply chain and data centers. 0:05:18.920 --> 0:05:20.920 Korea we think is a sweet spot for the markets 0:05:21.000 --> 0:05:24.520 right now. It's under owned, It's been you know, bought 0:05:24.560 --> 0:05:28.239 in the last couple of months, but broadly underperformed pretty 0:05:28.240 --> 0:05:32.920 significantly Visavi Taiwan over the last year or so. You're 0:05:32.960 --> 0:05:36.320 starting to see an inflection now in semiconductor exports that 0:05:36.600 --> 0:05:39.200 just went positive over the last two months coming out 0:05:39.200 --> 0:05:42.240 of Korea. We think that's a real sweet spot. China, 0:05:42.800 --> 0:05:46.560 you know, we're cautious on still. Certainly we're starting to 0:05:46.600 --> 0:05:49.840 see some signs of the tides turning, but we think 0:05:49.880 --> 0:05:53.960 that China's stabilizing, not necessarily growing, And so I think 0:05:53.960 --> 0:05:57.679 that that creates a challenge for investors really meaningfully sizing 0:05:57.680 --> 0:06:00.120 their positions in China, just because the property marked that 0:06:00.200 --> 0:06:02.239 we think is going to continue to be a fairly 0:06:02.279 --> 0:06:04.880 significant overhang on overall GDP growth. 0:06:05.000 --> 0:06:07.000 Looking at twelve months, as you look across the world, 0:06:07.080 --> 0:06:09.360 who do you think has the most favorable growth policy 0:06:09.400 --> 0:06:10.599 mix right now? 0:06:10.839 --> 0:06:11.640 Who do you think it is? 0:06:11.880 --> 0:06:14.640 So I think that the US still does just because 0:06:14.640 --> 0:06:17.760 of the fiscal overhang is going to continue to create 0:06:18.000 --> 0:06:20.560 divergence and economic growth in the US versus the rest 0:06:20.600 --> 0:06:22.839 of the world. I think you are starting to see 0:06:22.839 --> 0:06:26.800 an inflection stabilization in Europe, and so that means given 0:06:26.800 --> 0:06:30.080 how you know, sort of under owned and cheap Europe 0:06:30.160 --> 0:06:33.640 is you can start to look back into European. 0:06:33.240 --> 0:06:34.440 Cyclicals in particular. 0:06:34.920 --> 0:06:36.960 But I think the US by far is still going 0:06:37.000 --> 0:06:39.200 to be the outperformer with respective growth. 0:06:38.960 --> 0:06:41.760 As that improves abroad. Do you want to play that 0:06:41.800 --> 0:06:44.120 through bonds effects or stocks? You mentioned equities? What do 0:06:44.160 --> 0:06:45.120 I do with fixed income? 0:06:45.240 --> 0:06:48.680 So with fixed income, I think we like duration here, 0:06:48.760 --> 0:06:54.400 but really like European, UK Canadian duration. We think that 0:06:54.440 --> 0:06:57.160 they're going to be much faster in terms of the 0:06:57.200 --> 0:06:59.960 cutting cycle, and probably more extended in terms of the 0:07:00.040 --> 0:07:02.800 cutting cycle. Then what's currently priced into market when you 0:07:03.120 --> 0:07:05.800 really interesting when you look what's priced into markets right 0:07:05.800 --> 0:07:08.919 now across fixed income, they're all pretty much pricing in 0:07:09.000 --> 0:07:12.280 the same interest rate path, and so that to us 0:07:12.120 --> 0:07:14.240 is probably very mistaked. 0:07:14.320 --> 0:07:14.840 Think that is. 0:07:15.560 --> 0:07:19.640 I think historically you see convergence in terms of central 0:07:19.680 --> 0:07:23.280 bank interest rate policy. The FED them stillselves are still 0:07:23.320 --> 0:07:26.240 expecting this to be a fairly normal FED cutting cycle. 0:07:26.280 --> 0:07:28.720 Of two hundred and twenty five basis points between now 0:07:28.760 --> 0:07:31.120 and the end of twenty twenty six, with about seventy 0:07:31.120 --> 0:07:34.200 five basis points of cuts each year, that's a pretty 0:07:34.240 --> 0:07:38.520 normal FED cutting cycle. We expect that's likely going to 0:07:38.520 --> 0:07:40.640 be more of a mid cycle adjustment, and so you're 0:07:40.680 --> 0:07:43.440 going to probably see about half of those cuts than 0:07:43.480 --> 0:07:46.440 what the FED is currently anticipating. And I think you're 0:07:46.480 --> 0:07:48.480 going to get some hint of that in the Summary 0:07:48.480 --> 0:07:50.320 of Economic Projections. 0:07:50.040 --> 0:07:52.840 In June June twelve for the SEPA of the FED decision. 0:07:52.880 --> 0:07:55.120 Sanctaez the inflation print and it's been too long. We 0:07:55.120 --> 0:07:56.680 haven't done this in person for years. It's going to 0:07:56.680 --> 0:07:56.920 see it. 0:07:56.960 --> 0:07:57.800 Thanks you see too. 0:07:57.760 --> 0:07:59.480 Aaron Brown, a fincove. 0:08:08.880 --> 0:08:11.040 To break it down to the very best in places, 0:08:11.040 --> 0:08:14.360 say joining us now, J Briceon of Wells Fargo alongside 0:08:14.360 --> 0:08:16.880 Adam Posen of the Peterson Institute. 0:08:16.960 --> 0:08:18.200 Jay, can I come to you first? 0:08:18.680 --> 0:08:20.960 I want to get your review of the assessment from 0:08:21.000 --> 0:08:24.080 Governor Wallach just yesterday. Given that inflation print from the 0:08:24.160 --> 0:08:27.600 last week or so, a C plus grade, would you 0:08:27.640 --> 0:08:28.559 give it the same grade? 0:08:30.680 --> 0:08:32.640 You know, B minus C plus. 0:08:32.840 --> 0:08:33.040 You know. 0:08:33.240 --> 0:08:36.640 The good thing is it's coming down right, and I 0:08:36.640 --> 0:08:38.400 think we're going to continue to see that as we 0:08:38.480 --> 0:08:40.600 go forward. You know, the big sticky part here has 0:08:40.640 --> 0:08:43.280 been the service sector sort of inflation and what we 0:08:43.360 --> 0:08:46.240 know about the leading indicators of housing process. If you 0:08:46.240 --> 0:08:48.319 look at what's happening in rents in the economy, you're 0:08:48.320 --> 0:08:51.319 going to continue to see disinflation there. And then when 0:08:51.320 --> 0:08:53.000 you look at wage growth, and when we saw this 0:08:53.160 --> 0:08:57.640 in the average hourly earnings print earlier this month, wage 0:08:57.640 --> 0:09:01.240 growth by measured by average earnings only up zero point 0:09:01.280 --> 0:09:03.599 two percent. If you look at that and you annualize 0:09:03.600 --> 0:09:06.240 that over the last three months, we're below three percent 0:09:06.360 --> 0:09:09.120 right now. So all that's pointing in the direction of 0:09:09.400 --> 0:09:11.880 inflation continuing to receive as we go forward. 0:09:11.920 --> 0:09:14.240 Adam, to Jay's point, is the evidence building that things 0:09:14.280 --> 0:09:16.240 truly a downshifting. 0:09:16.040 --> 0:09:16.600 Not really. 0:09:17.640 --> 0:09:20.600 We hosted Governor Waller yesterday for the speech, and I 0:09:20.600 --> 0:09:26.000 think what was striking John was that he was trying 0:09:26.000 --> 0:09:28.320 to put a dubvish spin on what was actually a 0:09:28.360 --> 0:09:31.600 pretty hawkish message. I mean, he basically said, I have 0:09:31.679 --> 0:09:34.680 to see real slowing in the US economy before I 0:09:34.720 --> 0:09:38.120 want to cut and he ridiculed the fact I think 0:09:38.200 --> 0:09:41.680 rightly that you know they're parsing now the second decimal 0:09:41.720 --> 0:09:45.040 place on the inflation print, which I thought was very 0:09:45.040 --> 0:09:48.319 well taken from Chris. So I think the message is no, 0:09:48.520 --> 0:09:50.640 they don't want to admit that there's a possibility they'll 0:09:50.679 --> 0:09:54.160 have to hike, but they are backing off cutting. 0:09:54.320 --> 0:09:56.440 I love this feed speak is a Rushock test because 0:09:56.440 --> 0:09:58.319 earlier we had Andrew Hollenhorse saying that it was really 0:09:58.320 --> 0:10:01.200 aduvish message under the hood, because several could mean anything. 0:10:01.520 --> 0:10:03.439 You're saying that it's a hawkish message. Are you getting 0:10:03.480 --> 0:10:06.080 anything from some of the commentary considering that it really 0:10:06.160 --> 0:10:07.320 is sort of a choose your own adventure. 0:10:07.320 --> 0:10:09.440 Adam Well I watched before I came over this morning. 0:10:09.520 --> 0:10:12.240 Least I saw Andrew, and like me and Andrew, I mean, 0:10:12.240 --> 0:10:14.720 we've been both on the same side on the FED 0:10:15.360 --> 0:10:17.320 calling that they were going to hike a lot, and 0:10:17.360 --> 0:10:19.280 then calling they weren't going to cut a lot. And 0:10:19.360 --> 0:10:21.560 this is my first divergence with him in a while. 0:10:22.320 --> 0:10:24.480 I think, you look at Mester, you look at Collins, 0:10:24.520 --> 0:10:26.600 you look at Bostik, you look at Waller, you look 0:10:26.640 --> 0:10:27.720 at all this fed speak. 0:10:28.280 --> 0:10:30.080 It's all back to Phillip's curve. 0:10:30.120 --> 0:10:32.240 It's all back, even Chris who was the one who 0:10:32.240 --> 0:10:37.480 said you could have disinflation with vacancy dropping no unemployment rising, 0:10:37.520 --> 0:10:39.920 and yesterday he made very clear that at this point 0:10:40.000 --> 0:10:42.520 we're back on the flat part of the beverage curve 0:10:42.559 --> 0:10:45.360 and you would have to see unemployment rise. So I 0:10:46.200 --> 0:10:47.600 don't view it as dubbush at all. 0:10:47.920 --> 0:10:51.040 Jay, Why do you sort of, I don't know, maybe disagree, 0:10:51.240 --> 0:10:54.440 or would you push back at all saying that actually 0:10:54.640 --> 0:10:57.240 there still is room especially if you get weakness maybe 0:10:57.240 --> 0:10:58.040 in the labor market. 0:10:59.440 --> 0:11:02.240 Yeah, I certainly think that's true. I mean, things can 0:11:02.280 --> 0:11:05.520 fall apart really quickly. I'm not suggesting that's going to happen, 0:11:05.600 --> 0:11:08.000 but you were mentioning just earlier, you know, with when 0:11:08.120 --> 0:11:10.920 to look at Walmart and some of those other retailers. 0:11:11.000 --> 0:11:13.199 You're starting to see cracks in terms of the consumer. 0:11:13.840 --> 0:11:18.120 You know, delinquencies are going up. You know, monetary policy 0:11:18.200 --> 0:11:21.880 right now, measured by conventional sort of measures, real monetary policy, 0:11:21.920 --> 0:11:25.240 real rate still remains restrictive. And so I think you 0:11:25.320 --> 0:11:28.920 will see continued slowing as we go forward. Now certainly 0:11:28.920 --> 0:11:30.880 not looking for a rate cut anytime soon. I think 0:11:30.880 --> 0:11:32.480 the Fed is going to hold the line on that 0:11:32.520 --> 0:11:35.000 and make sure that we're coming back to two percent 0:11:35.080 --> 0:11:37.600 on a sustained sort of basis. But things can you know, 0:11:37.640 --> 0:11:40.800 things can downshift here pretty quickly as we go forward, 0:11:40.840 --> 0:11:42.719 and particularly is what we're seeing in terms of the 0:11:42.720 --> 0:11:43.560 consumer right now. 0:11:43.640 --> 0:11:45.079 Adam, Yeah, I think. 0:11:45.520 --> 0:11:48.319 I mean, Jay, I know well, and he's made a 0:11:48.400 --> 0:11:51.520 legitimate point, but I think downshifting in the consumer after 0:11:51.559 --> 0:11:54.480 the run of the consumer, the Nvidia like run of 0:11:54.520 --> 0:11:57.200 the consumer for the last couple of years, is not 0:11:58.040 --> 0:12:01.760 necessarily for tending. In fact, is very unlikely before attending 0:12:01.800 --> 0:12:05.040 a massive down shift. But more importantly, what the Fed's 0:12:05.080 --> 0:12:07.520 not allowed to talk about, but you hear in surveillance 0:12:07.559 --> 0:12:10.400 and I and Jay and everybody can talk about is 0:12:10.480 --> 0:12:13.400 what happens after the election. Right you were talking a 0:12:13.440 --> 0:12:16.800 minute ago, Lisa about whack them all and targeted policies. Right, 0:12:17.200 --> 0:12:20.440 So what happens after the election is probably we get 0:12:20.600 --> 0:12:25.520 fiscal boom, particularly under Biden, and if it's under Trump, 0:12:25.600 --> 0:12:29.520 we get a huge energy shift towards go go go 0:12:29.640 --> 0:12:33.960 drills or baby drill and internal combustion engines. Either way, 0:12:34.120 --> 0:12:38.559 you're gonna get probably an unsustainable boom in twenty twenty five. 0:12:38.880 --> 0:12:41.760 And I think the Fed's gonna have to start raising You. 0:12:41.760 --> 0:12:43.840 Think they're gonna be hiking interest rights again next year? 0:12:44.040 --> 0:12:47.079 Yeah, really, very reluctantly quickly. 0:12:47.120 --> 0:12:49.840 And what's the lesson, say, of twenty sixteen, twenty seventeen, 0:12:49.880 --> 0:12:51.960 when we're all waiting for those tax cuts. The FED 0:12:52.040 --> 0:12:54.240 knew that we were coming, but they couldn't change their 0:12:54.280 --> 0:12:56.040 plans until they actually saw them. 0:12:56.040 --> 0:12:57.800 It's that decent experience. 0:12:57.440 --> 0:12:59.120 I think, John, that's a relevant example. 0:12:59.200 --> 0:13:03.400 I mean, because they supposedly the tax is from twenty 0:13:03.520 --> 0:13:05.480 seventeen are going to expire by the end of twenty 0:13:05.520 --> 0:13:08.160 twenty five, and depending on who's in Congress and who's 0:13:08.160 --> 0:13:11.120 in the White House, there'll be a very protracted messing negotiation. 0:13:11.920 --> 0:13:14.840 But if you're Biden, you have to spend more on defense, 0:13:14.920 --> 0:13:16.920 you have to spend more on energy, you have to 0:13:17.000 --> 0:13:20.320 keep spending on the industrial policy. If you're Trump, you're 0:13:20.320 --> 0:13:24.839 busy pushing out deregulation, tax cuts, whatever it is. Both 0:13:24.880 --> 0:13:29.160 of them are pushing towards a very big fiscal swing. 0:13:29.760 --> 0:13:32.160 And whatever result. 0:13:31.880 --> 0:13:35.280 We get on the taxes, it's by the end of 0:13:35.320 --> 0:13:37.240 twenty twenty five. It's not going to be tax rates 0:13:37.320 --> 0:13:37.880 jumping up. 0:13:38.400 --> 0:13:40.080 I'm so pleased you've brought this up because I do 0:13:40.120 --> 0:13:42.400 think we're flying blind into twenty twenty five. I get 0:13:42.440 --> 0:13:44.120 the same finning, and you're the first person when he's 0:13:44.160 --> 0:13:45.600 come on this probagram and actually sort of la out 0:13:45.640 --> 0:13:47.640 where your thing's going to happen. Why you're finish Federal 0:13:47.640 --> 0:13:49.199 serve that's going to have to hike interest rights. So 0:13:49.200 --> 0:13:51.360 they said, I've not heard that before on this show. 0:13:51.440 --> 0:13:52.640 I got something to talk about. 0:13:52.760 --> 0:13:54.840 Well, yeah, I mean I'm sitting here thinking to myself, 0:13:55.000 --> 0:13:56.720 if you have a boom on top of what we've 0:13:56.720 --> 0:13:59.640 already had, that's a real boom for stocks and a 0:13:59.640 --> 0:14:03.040 real negative for bonds. Jay, what's your reaction to that? 0:14:04.400 --> 0:14:06.960 Well, so what I would say is, you know, we're 0:14:06.960 --> 0:14:10.319 talking about President Biden, we're talking about potential President Trump. 0:14:10.320 --> 0:14:12.320 It's really going to depend on what the congressional makeup 0:14:12.320 --> 0:14:14.560 looks like as well. And so in order to get 0:14:14.600 --> 0:14:17.320 those big fiscal swings, you pretty much need to have 0:14:18.320 --> 0:14:21.160 Congress and the White House kind of aligned. And if 0:14:21.200 --> 0:14:24.680 we have a split decision come November, and nobody knows 0:14:24.720 --> 0:14:27.920 what's obviously going to happen, but you know, we'll see 0:14:27.960 --> 0:14:28.960 what happens there. 0:14:28.960 --> 0:14:30.240 In terms of fiscal policy. 0:14:30.560 --> 0:14:33.120 But between now and the end of the year, I 0:14:33.120 --> 0:14:35.960 mean we start looking at five months way of that, 0:14:36.040 --> 0:14:38.680 and I could potentially see a lot of downshifting here 0:14:38.800 --> 0:14:40.960 in terms of the economy. And you know, if you 0:14:41.040 --> 0:14:43.360 potentially you could see some FED rate cuts at the 0:14:43.480 --> 0:14:44.840 end of the year, but a lot of it's going 0:14:44.880 --> 0:14:46.800 to hinge, as Adam points out, a lot of it's 0:14:46.800 --> 0:14:48.960 going to hinge on what happens in the election and 0:14:49.000 --> 0:14:51.520 again what the election outcome is in terms of not 0:14:51.560 --> 0:14:53.640 only the president, but in terms of what the congressional 0:14:53.720 --> 0:14:54.800 makeup looks like as well. 0:14:55.000 --> 0:14:55.440 And jay is. 0:14:55.480 --> 0:14:57.600 Juma's pointing out it's very hard to have any visibility 0:14:57.680 --> 0:15:00.360 whatsoever and what's going to happen. And it makes a 0:15:00.440 --> 0:15:03.200 very compelling case for why either way you'd get a 0:15:03.240 --> 0:15:06.320 fiscal boom. Either way, though, why would the Federal Reserve 0:15:06.440 --> 0:15:09.320 want to cut rates ahead of that, knowing that there 0:15:09.360 --> 0:15:12.240 could be some upside that could force them to reverse course. 0:15:13.240 --> 0:15:15.160 Well, again, I'm not looking for them to cut rates 0:15:15.200 --> 0:15:17.640 anytime soon. I mean, I think the earliest, the potential 0:15:17.680 --> 0:15:19.840 early as you would see a rate cut, it depends 0:15:19.880 --> 0:15:22.120 on what was happening with the data between now and 0:15:22.160 --> 0:15:25.360 then would be in September. The election obviously complicates that 0:15:25.400 --> 0:15:29.600 a little bit as well. There's another fom seating meeting 0:15:29.640 --> 0:15:31.880 right after the election, two days after the election. 0:15:32.200 --> 0:15:33.160 Do they cut rates there? 0:15:33.200 --> 0:15:35.320 I mean, that's going to complicate things as well at 0:15:35.320 --> 0:15:37.240 that point, but they're really going to have to see 0:15:37.240 --> 0:15:41.280 how the smoke clears. And again, just because you're going 0:15:41.320 --> 0:15:43.280 to potentially get a fiscal boom, it's not going to 0:15:43.280 --> 0:15:46.400 happen right away. I mean, and so this is going 0:15:46.440 --> 0:15:49.880 to be legislated sometime in twenty twenty five. We're still 0:15:50.240 --> 0:15:53.360 at least a year out from things being legislated, and 0:15:53.520 --> 0:15:56.480 the federal will be responding to where the economy is 0:15:56.560 --> 0:15:57.600 at that point in time. 0:15:57.880 --> 0:16:00.600 Jay, I'm glad you brought up Congress Adam, this kind 0:16:00.600 --> 0:16:02.520 of idea you have about the feed having to hike 0:16:02.600 --> 0:16:05.840 because of this fiscal spending is dependent on the makeup 0:16:05.880 --> 0:16:06.600 of Congress. 0:16:07.040 --> 0:16:08.120 Biden, if he was going to. 0:16:08.120 --> 0:16:10.440 Spend like that, would need a democratic House and a 0:16:10.480 --> 0:16:11.320 Democratic Senate. 0:16:11.400 --> 0:16:15.360 Correct, Yes, and no, Emery, You're absolutely right, but I 0:16:15.400 --> 0:16:18.640 think less so than in the past because remember two things. 0:16:19.160 --> 0:16:23.120 First is that the bills already passed in IRA and CHIPS, 0:16:23.400 --> 0:16:28.520 they're mostly open ended subsidies. They do not require reauthorization 0:16:29.080 --> 0:16:32.000 from Congress. They can be interfered with if Trump comes in, 0:16:32.480 --> 0:16:37.640 but that spending goes second that the defense spending generally 0:16:37.680 --> 0:16:42.920 gets taken out and voted on separately and often bipartisan 0:16:43.000 --> 0:16:44.440 or at least more bipartisan. 0:16:44.800 --> 0:16:46.640 So I think two of the big places. 0:16:46.280 --> 0:16:48.080 Where you're going to get spending are not going to 0:16:48.080 --> 0:16:51.680 be subject to withholding by even a Republican Senate the 0:16:51.720 --> 0:16:52.960 way it might have been in the past. 0:16:53.160 --> 0:16:55.360 Interesting, just when it comes back to you on this 0:16:55.480 --> 0:16:57.720 down shift that you're looking for, I'll ask you the 0:16:57.800 --> 0:17:00.080 question asked Andrew, can you put some numbers on it. 0:17:00.120 --> 0:17:02.360 With a three month roll in average on payrolls north 0:17:02.360 --> 0:17:04.520 of two hundred k, what are you expecting to see 0:17:04.720 --> 0:17:06.800 to this summer? What does that come down to? Andrew said, 0:17:06.840 --> 0:17:08.920 support fifty. What are you looking for? 0:17:09.840 --> 0:17:12.120 Yeah, we're looking for roughly the same. I mean, if 0:17:12.119 --> 0:17:15.080 you look at our average for the third quarter, I 0:17:15.080 --> 0:17:17.320 think we're looking at one fifty and then slowing to 0:17:18.119 --> 0:17:20.880 roughly one hundred and twenty or so by the fourth 0:17:20.960 --> 0:17:23.280 quarter of the year. And we're also looking for the 0:17:23.359 --> 0:17:25.439 unemployment rate by the end of the year to be 0:17:25.520 --> 0:17:27.639 up to four point one percent, you know, and if 0:17:27.680 --> 0:17:30.800 you believe in the sal rule, if you get up 0:17:30.840 --> 0:17:33.320 to four point one percent, then the economy should be 0:17:33.320 --> 0:17:36.000 tipping into recession. Now we're not looking for that, but 0:17:36.119 --> 0:17:39.720 we are looking for subtrend economic growth later this year. 0:17:40.400 --> 0:17:43.680 Prints of you know, less than two percent, not being 0:17:43.800 --> 0:17:46.240 dragged down by inventories, not being dragged down by a 0:17:46.280 --> 0:17:50.600 big import surge, being dragged down by downshift, and consumer 0:17:50.640 --> 0:17:54.720 spending it as well as investment spending that is lackluster 0:17:54.800 --> 0:17:55.200 at best. 0:17:55.400 --> 0:17:57.720 Jay, this was great, super thoughtful, Ja Bryce in there 0:17:57.840 --> 0:18:01.560 of Wells Fargo, Adam Posen, they Institute for International Economic 0:18:01.640 --> 0:18:03.600 still with us around the table, Adam, I wanted to 0:18:03.600 --> 0:18:06.359 save sometimes talk about trade. Yeah, We've got some really 0:18:06.359 --> 0:18:08.080 strong thoughts on this, and I think it's going to 0:18:08.119 --> 0:18:10.560 be a valuable portion of this program this morning. Do 0:18:10.640 --> 0:18:13.320 you think we're turning on back on economic liberalization at 0:18:13.320 --> 0:18:16.560 a time when global challenges actually could benefit from it. 0:18:16.760 --> 0:18:19.040 That's a great big picture question, John, and I appreciate 0:18:19.080 --> 0:18:21.160 the fact that you and Lisa and Marie keep coming 0:18:21.200 --> 0:18:23.800 back to this. It is a huge shift, whether it's 0:18:23.800 --> 0:18:27.159 Biden or Trump. Biden I think is drawing the line 0:18:27.440 --> 0:18:30.480 at some of the most crazy Trump tariff policies that 0:18:30.560 --> 0:18:33.560 are proposed, but he's done nothing to reverse and now 0:18:33.720 --> 0:18:37.480 added on some there's an anti China element which has 0:18:37.560 --> 0:18:40.840