WEBVTT - Surveillance: Inflation with Fed's Evans (Podcast) 0:00:05.120 --> 0:00:09.200 Welcome to the Bloomberg Surveillance Podcast. I'm Tom Keane. Along 0:00:09.200 --> 0:00:13.200 with Jonathan Ferroll and Lisa Abramowitz. Daily we bring you 0:00:13.280 --> 0:00:18.600 insight from the best and economics, finance, investment, and international relations. 0:00:18.800 --> 0:00:23.759 To find Bloomberg Surveillance on Apple podcast, SoundCloud, Bloomberg dot Com, 0:00:23.920 --> 0:00:30.440 and of course on the Bloomberg Terminal. Are Michael McKee 0:00:30.440 --> 0:00:35.560 now in conversation with Charles Evans. I have had many 0:00:35.600 --> 0:00:38.800 a guide, a long, long discussion with him years ago 0:00:38.840 --> 0:00:41.360 at the Council on Foreign Relations, and this is you 0:00:41.360 --> 0:00:44.320 know that all the FED presidents are hugely qualified, and 0:00:44.320 --> 0:00:48.480 they're all very, very different. This is a bulletproof freshwater 0:00:48.680 --> 0:00:53.760 academic on monetary policy and how it dovetails in to 0:00:53.920 --> 0:00:57.840 social policy. Let's listen. Hello, I'm Bloomberg's Michael McKee live 0:00:57.880 --> 0:01:01.080 on TV and Bloomberg Radio World with a special guest, 0:01:01.200 --> 0:01:05.560 Chicago FED President Charles Evans is joining us now and Charlie, 0:01:05.560 --> 0:01:08.280 thanks for coming in. It's nice to see somebody in 0:01:08.319 --> 0:01:10.959 person for a change. More. Mike is going to be here. 0:01:12.000 --> 0:01:16.280 A lot of people questioning now whether the FED is 0:01:16.440 --> 0:01:20.440 going to be debating monetary policy or whether we're kind 0:01:20.440 --> 0:01:23.360 of locked in for the rest of the year. The 0:01:23.360 --> 0:01:25.880 Fed has said, and j Pal has said fifty basis 0:01:25.920 --> 0:01:28.600 points at the next couple of meetings. Would you anticipate 0:01:29.160 --> 0:01:33.280 something like that running through December? Well, um, you know, 0:01:33.319 --> 0:01:36.199 we've been discussing the state of the economy and inflationary 0:01:36.240 --> 0:01:39.280 pressures for quite some time, and the Committee is definitely 0:01:39.319 --> 0:01:42.840 coalesced around um, you know, moving off the effect of 0:01:42.920 --> 0:01:45.840 lower bound We've already you know, begun doing that, and 0:01:45.880 --> 0:01:49.200 as Chapel said, we're going to be moving expeditiously towards 0:01:49.240 --> 0:01:52.760 something much more like a neutral Fed funds rate. My 0:01:52.800 --> 0:01:54.880 own assessment of neutral is in the two and a 0:01:54.960 --> 0:01:58.040 quarter to two and a half percent range for the 0:01:58.040 --> 0:02:01.160 federal funds, right. Uh. Um, you know, as the chair 0:02:01.160 --> 0:02:04.040 has said, Um, you know, we just did fifty and 0:02:04.160 --> 0:02:06.960 you know, fifties are on the table for uh some 0:02:07.080 --> 0:02:09.520 period of time. I would expect by the end of 0:02:09.520 --> 0:02:11.680 this year it could be quite likely that we were 0:02:11.720 --> 0:02:13.600 at a neutral setting, and I think we would be 0:02:13.680 --> 0:02:17.919 very well positioned to address them, you know, future inflationary 0:02:17.919 --> 0:02:21.920 pressures of three. I'm expecting things to improve from the 0:02:22.000 --> 0:02:24.000 very high inflation that we're having, but I do think 0:02:24.040 --> 0:02:26.359 that it's going to take us some time to take 0:02:26.400 --> 0:02:29.720 care of this. Do you see any probability or possibility 0:02:29.880 --> 0:02:32.959 or reason to that seventy mess point move would come 0:02:33.000 --> 0:02:35.480 to the table? Well, I think it's very useful to 0:02:35.600 --> 0:02:38.840 frontload our policy settings at the moment. We did fifty 0:02:38.880 --> 0:02:41.959 at our last meeting, and it's extremely likely that fifty 0:02:41.960 --> 0:02:44.639 at the next meeting, and you know, probably there after. 0:02:45.840 --> 0:02:49.080 You know, it's once we get to a good setting 0:02:49.200 --> 0:02:52.480 for the funds rate, when we can sort of after that, 0:02:52.560 --> 0:02:55.200 do a more measured pace of increases, say twenty five 0:02:55.240 --> 0:02:58.359 basis points at each meeting after that. I think that 0:02:58.400 --> 0:03:00.760 would be a nice shallow path that we give us 0:03:00.760 --> 0:03:04.320 time to assess the incoming data and know exactly what 0:03:04.360 --> 0:03:06.799 we're facing. So, um, if we do a little bit 0:03:06.800 --> 0:03:09.280 more sooner than we can get to that point where 0:03:09.280 --> 0:03:11.480 we can do the shallow path, or you know, maybe 0:03:11.520 --> 0:03:13.920 we take fifties a little bit longer. But you know, 0:03:14.000 --> 0:03:16.520 like I say, I think something like neutral by the 0:03:16.639 --> 0:03:18.480 end of the year. Whether or not, you you know, 0:03:18.680 --> 0:03:21.959 get there sooner or you know, earlier, is not that 0:03:21.760 --> 0:03:24.920 that that critical. It's being well positioned to address the 0:03:24.960 --> 0:03:27.919 problems that we expect to face. In three. That's first 0:03:28.240 --> 0:03:30.799 my first concern, how far above neutral do you think 0:03:30.840 --> 0:03:32.880 you may have to go to get the results you want. 0:03:33.600 --> 0:03:37.560 It's a hard question, um, you know, it's nobody reports 0:03:37.600 --> 0:03:40.080 what the neutral setting of the FED funds rate is. 0:03:40.120 --> 0:03:42.480 It moves around over time. It depends on whether or 0:03:42.520 --> 0:03:45.000 not we've got tail winds or at our back or 0:03:45.080 --> 0:03:48.000 headwinds that we're facing. And so I think we're gonna 0:03:48.040 --> 0:03:50.880 be feeling our way around that. Like I say, I've 0:03:50.920 --> 0:03:53.160 got a benchmark of what I think, and so if 0:03:53.160 --> 0:03:56.120 we go beyond that, we go fifty basis points beyond that, 0:03:56.200 --> 0:03:59.920 seventy basis points beyond that, then that restrictive setting a 0:04:00.120 --> 0:04:04.360 policy should be working to bring inflation down. We don't 0:04:04.520 --> 0:04:08.400 have to constantly increase the funds rate to be restrictive. 0:04:08.480 --> 0:04:10.720 We can get to a restrictive setting and sit there 0:04:11.040 --> 0:04:13.840 for a while. Maybe we sit there longer at a 0:04:13.960 --> 0:04:17.840 less restrictive, you know setting, and it takes a little 0:04:17.839 --> 0:04:19.800 bit longer for inflation to come down. But there are 0:04:19.800 --> 0:04:22.840 many special factors that have led to the very very 0:04:22.920 --> 0:04:25.679 high inflation rate that we're facing, and so I'm hopeful 0:04:25.720 --> 0:04:29.320 that in we're gonna be facing core PC under three pc. 0:04:30.400 --> 0:04:34.200 Wall Street would like to know whether if the economy slows, 0:04:34.800 --> 0:04:38.240 you're willing to slow the pace of rate increases to 0:04:38.279 --> 0:04:42.360 try to keep the economy from falling down to keep 0:04:42.440 --> 0:04:45.000 us out of recession, or whether you will continue to 0:04:45.040 --> 0:04:47.919 be aggressive if inflation remains high. And I suppose that 0:04:47.960 --> 0:04:50.000 begs the question of whether you see a recession or not. 0:04:50.240 --> 0:04:53.320 So I'll leave those two questions for you. Right well, 0:04:53.320 --> 0:04:55.400 we have a demandate, you know, we you know, we 0:04:55.480 --> 0:05:00.440 are trying to set the monetary and financial condem sans 0:05:00.520 --> 0:05:05.080 to support maximum employment and price stability. At the moment, 0:05:05.120 --> 0:05:07.760 the price stability objective is the one that's most critical 0:05:07.839 --> 0:05:10.920 because you know, at eight point three you know, CPI 0:05:11.440 --> 0:05:13.000 UM that's much too high. I think it's going to 0:05:13.080 --> 0:05:16.440 be coming down. The labor market is doing extremely well. 0:05:16.520 --> 0:05:20.239 There's tremendous demand for workers, and I'm hopeful that labor 0:05:20.240 --> 0:05:23.279 force participation will increase. But basically we have a vibrant 0:05:23.520 --> 0:05:26.239 labor market. So the first order of business is getting 0:05:26.279 --> 0:05:29.760 inflation under control. Now as we, you know, get to 0:05:29.800 --> 0:05:33.240 a restrictive setting of monetary policy, I do expect that 0:05:33.279 --> 0:05:36.039 the economy is going to cool a little bit by cooling. 0:05:36.080 --> 0:05:38.359 I mean, we're still going to be having growth. I 0:05:38.400 --> 0:05:41.400 think the growth at trend levels one in three quarters 0:05:41.400 --> 0:05:44.200 to two UM one trend is one in three quarters, 0:05:44.240 --> 0:05:47.120 but I'm looking for two to point two percent as 0:05:47.120 --> 0:05:50.599 we continue to have a neutral to restrictive setting, and 0:05:50.640 --> 0:05:52.920 so that's consistent with growth. If we see something that's 0:05:53.080 --> 0:05:55.239 weaker than that, we'll have to see what that means 0:05:55.240 --> 0:05:58.560 for inflation. Uh. If inflation the trajectory looks like it's 0:05:58.600 --> 0:06:01.440 confidently coming down and we're you know, going to hit 0:06:01.480 --> 0:06:03.640 our two percent objective or be close enough to it, 0:06:03.680 --> 0:06:05.640 then you know we'd have a little more latitude. But 0:06:05.680 --> 0:06:08.040 at the moment, we really need to be focusing on inflation. 0:06:08.960 --> 0:06:13.120 What's your forecast for inflation over the next quarters and year? 0:06:13.520 --> 0:06:15.360 And I asked that in the context of what you're 0:06:15.400 --> 0:06:19.640 hearing from the CEOs in your district about whether they're 0:06:19.640 --> 0:06:22.840 still feeling price pressures, whether they still feel they have 0:06:23.000 --> 0:06:26.280 pricing power. Right. So I want to talk to UM. 0:06:26.440 --> 0:06:30.000 You know businesses, UM, you know C suite individuals or 0:06:30.200 --> 0:06:32.520 you know small business, and you know they're facing a 0:06:32.640 --> 0:06:35.599 lot of cost pressures and to the extent that they've 0:06:35.600 --> 0:06:37.760 been able to do it they have passed along many 0:06:37.839 --> 0:06:41.000 of those cost pressures. UM. I think the days of 0:06:41.160 --> 0:06:42.720 how long they're going to be able to pass that 0:06:42.800 --> 0:06:46.000 along are probably numbered. I think consumers are you know, 0:06:46.240 --> 0:06:48.960 getting fed up with high prices, and they can respond 0:06:49.080 --> 0:06:52.360 by shifting their expenditures. But but businesses are, you know, 0:06:52.520 --> 0:06:56.480 facing those pressures. They've raised wages and in many cases 0:06:56.640 --> 0:07:00.520 where you know, um, you know, six months nine months ago, 0:07:00.640 --> 0:07:03.040 we heard that there were intense wage pressures. When wages 0:07:03.080 --> 0:07:06.280 have gone up, that is actually satisfied and improved the 0:07:06.360 --> 0:07:09.320 labor setting in those manufacturing plants, and so you know, 0:07:09.480 --> 0:07:12.800 higher wages, UM, it doesn't necessarily mean they have to 0:07:12.920 --> 0:07:16.440 keep going up each quarter, each month. And so i'm i'm, 0:07:16.600 --> 0:07:19.400 I'm you know, I feel confident that businesses are going 0:07:19.440 --> 0:07:22.160 to get on top of their labor costs and pricing 0:07:22.240 --> 0:07:25.000 behavior will be more in line with UM. You know 0:07:25.080 --> 0:07:27.520 what I think price stability is. I can't reel off 0:07:28.040 --> 0:07:30.040 what you know inflation is going to be three months 0:07:30.120 --> 0:07:32.080 from now or six months from now, because there are 0:07:32.080 --> 0:07:34.640 a lot of real factors that could play out in 0:07:34.760 --> 0:07:36.840 different ways. And that's part of what we're gonna be 0:07:36.880 --> 0:07:38.800 looking for. You know, if we get to a neutral 0:07:38.840 --> 0:07:41.280 setting by the end of this year. We're gonna have 0:07:41.880 --> 0:07:44.040 you know, many many more months of data to see 0:07:44.080 --> 0:07:46.120 as a trajectory coming down. Or do we still have 0:07:46.200 --> 0:07:48.120 a real problem on our hands and we need to 0:07:48.160 --> 0:07:52.040 be much more restrictive. Um, we're talking with Chicago FED 0:07:52.120 --> 0:07:55.480 President Charles Evans. Uh. Let me follow that up with 0:07:55.760 --> 0:08:01.320 a question, not from me, the professional economist markets watcher, 0:08:01.520 --> 0:08:03.960 but from the average American. When am I gonna feel 0:08:04.040 --> 0:08:09.040 like my paycheck is keeping up with inflation? Yeah? I 0:08:09.080 --> 0:08:12.520 mean it's been very difficult for households. Obviously. Gas prices 0:08:12.560 --> 0:08:15.560 have been extremely high, food prices are high. I think 0:08:15.600 --> 0:08:20.640 worldwide factors are an enormous part of that. UM. You know, 0:08:20.920 --> 0:08:24.920 um energy supplies, the Russian invasion of Ukraine is hitting uh. 0:08:25.360 --> 0:08:28.880 You know, gas prices, agricultural prices. You know, a lot 0:08:28.960 --> 0:08:31.760 of uh weed is produced in Ukraine and that has 0:08:31.800 --> 0:08:34.640 global implications and all of that. Um, we have very 0:08:34.679 --> 0:08:38.000 strong demand. So it's you know it, you know, it 0:08:38.120 --> 0:08:41.280 makes sense. It's what everybody is dealing with. Higher prices, shortages. 0:08:41.320 --> 0:08:43.760 You can't necessarily get exactly the product that you want, 0:08:44.200 --> 0:08:48.479 and it's a lot higher. I'm hopeful that as inflation 0:08:48.960 --> 0:08:51.640 comes down, Hopefully some of those prices will revert and 0:08:51.720 --> 0:08:54.240 they they'll come down. Food prices often you know, can 0:08:54.320 --> 0:08:57.080 can round trip and uh, energy prices too, but gas 0:08:57.120 --> 0:08:59.360 prices are high and that's always you know, a negative 0:08:59.400 --> 0:09:01.719 thing for considered more confidence if we can get that 0:09:01.920 --> 0:09:04.400 in better shape. But that's not monetary policy, that's sort 0:09:04.440 --> 0:09:07.360 of supply conditions. And wages have gone up, so I 0:09:07.440 --> 0:09:10.760 think incomes. Incomes have gone up, and you know, the 0:09:10.840 --> 0:09:13.160 labor market is good. People who want a job can 0:09:13.200 --> 0:09:15.880 get a job. That's good for household income. If we 0:09:15.960 --> 0:09:18.760 can get labor force participation up in some childcare to 0:09:18.840 --> 0:09:22.480 adult care issues resolved to keep everybody in schools, that 0:09:22.480 --> 0:09:25.760 will be beneficial for um, the economy. Have you been 0:09:25.800 --> 0:09:30.000 surprised by the strength of ongoing consumer spending that people 0:09:30.080 --> 0:09:33.679 are still buying a lot of stuff. Basically it has 0:09:33.720 --> 0:09:35.679 been strong, hasn't it. And you know, some of that 0:09:35.800 --> 0:09:37.880 I think is the fiscal support, but it was very 0:09:37.960 --> 0:09:41.040 helpful for many households that otherwise would be um in 0:09:41.240 --> 0:09:46.439 in very difficult situations. Um, I think that you know, 0:09:46.559 --> 0:09:49.280 the growth of the economy. Many people are doing extremely well, 0:09:49.400 --> 0:09:53.040 even if it's unequally shared and so sometimes those retail 0:09:53.080 --> 0:09:55.840 sales you know, come from sort of a skewed distribution 0:09:56.080 --> 0:10:00.680 of you know, um consumers and so um. It's nice 0:10:00.800 --> 0:10:04.560 that the fiscal support packages and the strong labor market, 0:10:04.640 --> 0:10:08.560 which has helped lower income workers you know, get jobs 0:10:08.640 --> 0:10:11.679 at better wages and also at better schedules, probably more 0:10:11.800 --> 0:10:14.079 full time. I mean, that's been beneficial, and so I 0:10:14.160 --> 0:10:17.040 think that's contributed to the strength in retail, and I 0:10:17.080 --> 0:10:20.040 hope that it continues. When you think about going forward, 0:10:20.040 --> 0:10:23.319 how much confidence do you have in your ability to 0:10:23.480 --> 0:10:27.440 bring inflation down, given that you've mentioned COVID and Ukraine 0:10:27.679 --> 0:10:30.280 and all of the other things that are going on, 0:10:30.480 --> 0:10:33.280 that our supply side problems and the FED works on 0:10:33.320 --> 0:10:36.760 the demand side. That's right, that's right. I mean, you know, 0:10:36.840 --> 0:10:39.360 one level I'm extremely confident that we can bring inflation down. 0:10:39.400 --> 0:10:45.000 Inflation is the you know, ever increasing prices of all goods, 0:10:45.120 --> 0:10:47.800 and you know that's a monetary phenomenon, and the setting 0:10:47.880 --> 0:10:50.640 of the federal funds rate, the policy rate, can address that. 0:10:50.960 --> 0:10:53.040 What I'm not confident about is we can't bring down 0:10:53.120 --> 0:10:55.280 gas prices. Gas prices are going to be very high 0:10:55.640 --> 0:10:59.040 because of real factors, um low inflation is going to 0:10:59.120 --> 0:11:01.680 be well, they're high, but they're not continuing to go up. 0:11:01.760 --> 0:11:04.400 But those are real factors, and it's another set of 0:11:04.440 --> 0:11:07.040 public policies that need to deal with that. Food prices 0:11:07.080 --> 0:11:09.520 are the same way. I'm confident that the setting of 0:11:09.760 --> 0:11:13.480 monetary policy can keep them from ever increasing. They could 0:11:13.600 --> 0:11:16.800 stay high on a relative basis compared to other prices 0:11:17.040 --> 0:11:19.040 for longer than most people would like, but we can 0:11:19.080 --> 0:11:21.959 get inflation down. Um You know, it probably would take 0:11:22.160 --> 0:11:25.840 more restrictive setting a monetary policy if those special factors 0:11:25.880 --> 0:11:27.840 continue to be high. Before we let you go, let 0:11:27.880 --> 0:11:29.360 me ask you about the balance sheet, because that's the 0:11:29.440 --> 0:11:33.400 other side of your monetary policy that has to play out. 0:11:34.000 --> 0:11:37.280 What do you anticipate happening when you start lowering the 0:11:37.320 --> 0:11:41.480 balance sheet? Should we see um rise in interest rates 0:11:41.520 --> 0:11:43.560 at the long end because it was designed to push 0:11:43.640 --> 0:11:45.840 them down at the log end, And if so, by 0:11:45.920 --> 0:11:51.160 how much? That's right. So we've increased our balance sheet dramatically, 0:11:51.280 --> 0:11:54.480 and we've announced that we're gonna let materian assets roll off. 0:11:54.640 --> 0:11:59.800 We chose among the most aggressive roll off um PA 0:12:00.240 --> 0:12:01.880 that that we could. So I think we're going to 0:12:01.960 --> 0:12:04.040 get our balance sheet down to a more normal level 0:12:04.360 --> 0:12:07.480 before very long that will have a restrictive effect on 0:12:07.640 --> 0:12:11.520 financial markets that sometimes is measured. I think for what 0:12:11.640 --> 0:12:13.760 we're looking at it, maybe it's the same as if 0:12:13.800 --> 0:12:15.920 we had increase the federal funds rate by fifty basis 0:12:15.960 --> 0:12:18.920 points on top of what we're actually doing, so we 0:12:19.040 --> 0:12:21.800 do have that restrictive setting. I tend to think that 0:12:22.559 --> 0:12:26.360 markets are forward looking. They are, and they price this 0:12:26.679 --> 0:12:29.199 in pretty much when they know what it is. So 0:12:29.240 --> 0:12:31.520 I think that effect is already working its way through 0:12:31.559 --> 0:12:34.400 financial markets. And we've seen long rates go up some 0:12:34.600 --> 0:12:38.120 we've seen borrowing rates, auto rates, mortgage rates go up, 0:12:38.160 --> 0:12:40.240 and so I think it's having that effect. That's helped 0:12:40.840 --> 0:12:44.240 somewhat with the front loading of restrictive monetary policies, and 0:12:44.360 --> 0:12:46.880 so that's you know, we're probably better position to be 0:12:46.920 --> 0:12:51.000 bringing inflation down because of that. So um, you know, 0:12:51.040 --> 0:12:53.760 I think that's working pretty much as we were hoping. Well. 0:12:53.880 --> 0:12:56.280 We wish you luck. Thank you very much Charles Evans 0:12:56.520 --> 0:12:59.640 for joining us today, the president of the Chicago Federal 0:13:00.040 --> 0:13:10.640 Earve Bank. Let's get to Annahan Equity Strategistics, Farncy Securities. Anna, 0:13:11.040 --> 0:13:16.200 the marching pressure from Walmart to target your thoughts. Please, Well, 0:13:16.280 --> 0:13:19.040 it's certainly a big indicator. Like you mentioned earlier, they 0:13:19.120 --> 0:13:22.240 employ a lot of people, and as people have a 0:13:22.360 --> 0:13:25.200 tighter later market labor markets, and yet if people are 0:13:25.280 --> 0:13:28.880 spending lest the question is can really companies passlong price. 0:13:29.320 --> 0:13:31.520 But keep in mind also, John, this is sort of 0:13:31.600 --> 0:13:34.280 what we're looking for, right We wanted to see demand 0:13:34.360 --> 0:13:37.520 cool off a bit to balance things, to bring inflation 0:13:37.600 --> 0:13:40.079 more under control. So you know, it's sort of the 0:13:40.559 --> 0:13:43.199 what we were hoping for, but also a little concerning 0:13:43.240 --> 0:13:46.599 on how much this raises the possibility of recession. And 0:13:46.760 --> 0:13:49.280 we're looking at the physics of a rocket launch right now. 0:13:49.360 --> 0:13:52.240 And they mentioned the maximum dynamic pressure. You did this 0:13:52.400 --> 0:13:56.520 ballet in your physics of undergraduate Let's cut to the chase, Anna, 0:13:56.800 --> 0:14:00.440 are we at the maximum dynamic pressure of inflation right now? 0:14:01.960 --> 0:14:05.319 We do think generally inflation measures have peaked, but I 0:14:05.400 --> 0:14:07.720 think it's going to be you know, using out Chirman 0:14:07.760 --> 0:14:11.199 pals language here, it's gonna be harder to get that 0:14:11.440 --> 0:14:14.480 soft ish landing. I think it's gonna be harder to 0:14:14.640 --> 0:14:17.400 bring down that figure. People were hoping that when we 0:14:17.520 --> 0:14:20.360 got this sort of eight percent headline number that it 0:14:20.400 --> 0:14:22.920 could come right back down. But we're seeing that's going 0:14:22.960 --> 0:14:25.280 to take several more quarters. But you know what's so 0:14:25.400 --> 0:14:30.600 important here, Let's go astronautical again, aeronautical again if we can, uh, 0:14:30.680 --> 0:14:35.840 and the the acceleration function is a squared function. Guessing 0:14:36.080 --> 0:14:39.720 time on the x axis is the hardest thing to 0:14:39.840 --> 0:14:43.200 do in this racket. What are the determinants you're gonna 0:14:43.400 --> 0:14:48.440 use to guess when inflation rolls over? I think one 0:14:48.640 --> 0:14:51.640 is a dynamic between really how does that good spending 0:14:51.720 --> 0:14:54.680 go versus a service spending? I think also to see 0:14:54.880 --> 0:14:56.640 what is the day name it between when you have 0:14:56.720 --> 0:14:59.640 a tight labor market and companies are able to have 0:14:59.800 --> 0:15:03.920 our have to be competitive and raise wages so that 0:15:04.040 --> 0:15:07.120 consumers actually have more to spend. But how will that 0:15:07.320 --> 0:15:10.680 offset with actually companies being able to pass along price 0:15:10.800 --> 0:15:13.880 because consumers have more money to spend. And then a 0:15:14.040 --> 0:15:17.160 third component I think that we're under appreciating here is 0:15:17.560 --> 0:15:20.600 right now, household wealth is very heavily tied to the 0:15:20.680 --> 0:15:24.040 equity markets. I think we saw historical amount of nearly 0:15:24.120 --> 0:15:26.560 a quarter of household wealth is tied to equity. So 0:15:26.880 --> 0:15:28.920 when equities are down like this, it can weigh on 0:15:29.000 --> 0:15:32.200 consumer sentiment. If we stay down. At these levels, you 0:15:32.280 --> 0:15:35.400 could see sort of that souring sentiment really start bleeding 0:15:35.440 --> 0:15:38.480 into consumer spending. These are the indicators we are watching, 0:15:38.600 --> 0:15:42.800 but we're not quite convinced yet that consumer is really decelerating. 0:15:43.080 --> 0:15:45.800 And can you elaborate what you said, which is that 0:15:46.080 --> 0:15:48.960 this particular series of reports is a little concerning with 0:15:49.040 --> 0:15:53.600 how much it raises the risk of recession. How So, well, 0:15:53.640 --> 0:15:56.400 when you talk about what is the possibility of recession 0:15:56.560 --> 0:15:59.280 for us, it's still a tail probability. It is not 0:15:59.440 --> 0:16:02.280 our base case, and we still put the possibility of 0:16:02.320 --> 0:16:07.240 a recession by end of at around so that's actually 0:16:07.320 --> 0:16:09.920 quite low compared to where some people are on the street. 0:16:10.400 --> 0:16:13.680 But the main driver and something that we've all focused 0:16:13.760 --> 0:16:17.160 on and relied on to pull us out of the recession, 0:16:17.200 --> 0:16:21.080 post pandemic and continue to driver economy has been the 0:16:21.200 --> 0:16:24.800 US consumer. The strength of spending and that willingness to 0:16:24.920 --> 0:16:28.440 spend not just on goods, but as COVID was relaxed, 0:16:28.480 --> 0:16:31.760 as lockdowns, relaxed on experiences and get out there and 0:16:31.920 --> 0:16:34.400 travel and put that money to work and circulate through 0:16:34.440 --> 0:16:37.960 the economy. So if that driver starts to cool down, 0:16:38.200 --> 0:16:41.760 then becomes the concern our margins really coming under pressure 0:16:41.920 --> 0:16:45.080 enough that earnings growth will turn negative, that GDP growth 0:16:45.160 --> 0:16:48.400 could turn negative again. Not our base case, Lisa, but 0:16:48.520 --> 0:16:51.000 the tail risks could be getting bigger here. So there 0:16:51.080 --> 0:16:52.800 have been a number of strategists that have come on 0:16:52.880 --> 0:16:55.520 and said they still like consumer discretion area because there 0:16:55.600 --> 0:16:57.520 has been such a wave of spending and because of 0:16:57.560 --> 0:16:59.920 the strength and the consumer. Would you back away from 0:17:00.000 --> 0:17:01.960 that kind of idea based on what we're seeing right 0:17:01.960 --> 0:17:05.960 now in these numbers. I wouldn't particularly back away, but 0:17:06.080 --> 0:17:09.000 perhaps it wouldn't be our number one call here. And 0:17:09.160 --> 0:17:11.399 just to keep in mind, you know, some part of that. 0:17:11.520 --> 0:17:14.399 We've been actually pretty negative on the retailing space to 0:17:14.480 --> 0:17:17.960 begin with, but we're still positive on the sources where 0:17:18.000 --> 0:17:21.200 you can have leisure spending, we can have those reopening trades, 0:17:21.280 --> 0:17:24.600 the travel tide industries. On the other hand, what we've 0:17:24.600 --> 0:17:28.240 been looking at very carefully, especially with the more tightening 0:17:28.440 --> 0:17:32.000 of the monetary policy here, has been the growth style. 0:17:32.240 --> 0:17:35.359 You've seen it beaten down so badly this year, and 0:17:35.440 --> 0:17:37.280 you've seen the we think we're starting to see the 0:17:37.359 --> 0:17:39.600 bottom for the growth style, so we're starting to warm 0:17:39.680 --> 0:17:42.840 up to it again. And when we look at the 0:17:42.920 --> 0:17:46.800 market adjustment here, it is off central banks, it is 0:17:46.920 --> 0:17:50.560 off the Fed. I'm focused on the non linearity of 0:17:50.680 --> 0:17:53.200 their FED decisions they have to make. It's frankly true 0:17:53.200 --> 0:17:57.960 for e c B as well. Link equity market performance 0:17:58.200 --> 0:18:01.960 into the massive challenges the FED has after the July 0:18:04.600 --> 0:18:06.399 You know, you bring up a great point, Tom, is 0:18:06.560 --> 0:18:08.320 how our equity is going to handle it? If the 0:18:08.440 --> 0:18:11.320 Fed continues to tighten and we start to really see 0:18:11.320 --> 0:18:14.720 that GDP growth slow for us, we do expect GDP 0:18:14.880 --> 0:18:17.720 to come down, but we also still think that unemployment 0:18:17.880 --> 0:18:20.600 rates could come even lower. And in that kind of 0:18:20.840 --> 0:18:25.040 environment again, where jobs and wade growth is aggressive and 0:18:25.160 --> 0:18:28.159 wages are going higher, we still think a possibility that 0:18:28.320 --> 0:18:31.200 equities can go higher from here. Our price target remains 0:18:31.280 --> 0:18:34.440 forty seven fifteen, and there's a reason for that. We 0:18:34.520 --> 0:18:37.040 think that there could be a change in the leadership here. Again, 0:18:37.119 --> 0:18:39.960 if growth has bottomed and we start getting a better 0:18:40.040 --> 0:18:44.480 handle inflation, that's gonna bode much wetter for these growth sectors, 0:18:44.680 --> 0:18:47.120 and they are still a large part of the SMPI 0:18:47.920 --> 0:18:50.800 A hand, thank you, an a hand well spunk our security. St. 0:18:54.920 --> 0:18:57.960 Joseph Feldman is with us. He holds court with Dana 0:18:58.040 --> 0:19:01.760 Telsey at the Telsa Advisory. We can talk about Walmart 0:19:01.840 --> 0:19:04.600 and Target, but Joe Felman, I want to talk about 0:19:04.680 --> 0:19:09.200 what you and I lived April two, two thousand thirteen, 0:19:09.320 --> 0:19:14.880 the real codification of reg f D. Are these corporations 0:19:15.040 --> 0:19:21.240 afraid to give guidance to animals like you? Well, I 0:19:21.720 --> 0:19:25.920 think the corporations are certainly afraid to give inter quarter 0:19:26.080 --> 0:19:29.159 commentary that would, you know, give too much of an 0:19:29.200 --> 0:19:32.720 insight into how the earnings might show up. And when 0:19:32.800 --> 0:19:35.840 doing so, they do have to make things broadly public 0:19:35.920 --> 0:19:38.840 and available at the same time, so that that definitely 0:19:39.440 --> 0:19:42.639 plays into this um and I do think that you 0:19:42.800 --> 0:19:48.720 you've seen corporations act differently. I've seen investor relations professionals 0:19:48.800 --> 0:19:51.639 get fired over it. So I think people are very 0:19:51.680 --> 0:19:56.640 careful to not give too much into quarter information struggle. 0:19:57.240 --> 0:20:00.280 When I say, a stoke down off the back of 0:20:00.320 --> 0:20:04.160 earnings on something that should not be a surprise, because 0:20:04.560 --> 0:20:06.440 they seem to be struggling with something cha other was 0:20:06.440 --> 0:20:08.560 obvious to everyone. I don't get that we've got a 0:20:08.600 --> 0:20:10.960 big execution problem at a single name or more broadly, 0:20:11.000 --> 0:20:12.680 and when you see two data points, it feels like 0:20:12.720 --> 0:20:16.440 a broader story it feels like Joe, from my perspective 0:20:16.440 --> 0:20:18.440 and others two looking in, they're struggling to find the 0:20:18.600 --> 0:20:22.120 right balance. These companies have gone from being understaffed, too overstaffed, 0:20:22.520 --> 0:20:25.359 undersupplied to what oversupplied and Joe, all of a sudden, 0:20:25.359 --> 0:20:26.720 there's all this inventory and they've done know what to 0:20:26.760 --> 0:20:28.359 do with it? Joe, how do you find the right 0:20:28.400 --> 0:20:32.119 balance in economy moving this fast? Yeah, I and I 0:20:32.240 --> 0:20:35.040 think that's really the challenge. And something actually Doug McMillan 0:20:35.080 --> 0:20:37.119 talked about yesterday was the speed of all of this 0:20:37.280 --> 0:20:41.000 that it's really hard to adjust the business that quickly 0:20:41.119 --> 0:20:44.760 to play some catch up. Obviously, the consumers moving and 0:20:44.920 --> 0:20:47.800 changing quite rapidly, and I think you're right. I think 0:20:47.880 --> 0:20:50.879 that you know, the retailers, we saw this with the 0:20:50.880 --> 0:20:53.960 Amazon too, where they kind of we're building out to 0:20:54.119 --> 0:20:57.680 the capacity that they needed at the time during the 0:20:57.720 --> 0:21:00.320 height of the pandemic, and now you're seeing some of 0:21:00.400 --> 0:21:03.280 the gift back. What's really interesting here is if you 0:21:03.400 --> 0:21:07.600 go back in history, Target targets gross margin has pretty 0:21:08.440 --> 0:21:13.640 been very stable right around obviously this quarter had really 0:21:13.720 --> 0:21:16.399 dropped a lot to five and a half percent, and 0:21:16.920 --> 0:21:19.000 their guidance for the year would imply that it's going 0:21:19.040 --> 0:21:25.600 to be certainly well below maybe more like I think 0:21:25.680 --> 0:21:28.600 that's transitory. And I know the stocks down a lot 0:21:28.760 --> 0:21:32.400 right now, and but if you kind of really look 0:21:32.440 --> 0:21:34.960 closely at that line item and look at the way 0:21:35.000 --> 0:21:37.440 they're operating the rest of the business, there's a lot 0:21:37.480 --> 0:21:41.080 of pressures right now on the supply chain, on fuel costs, 0:21:41.760 --> 0:21:45.080 on everything that's just hurting the business right now. I 0:21:45.119 --> 0:21:47.240 had a brain freeze there, Joe Feldman, because it just 0:21:47.280 --> 0:21:49.680 got the field cost to the Gulf stream to Davos 0:21:49.840 --> 0:21:52.879 Wold Lisa, that has gone up to say the least 0:21:53.040 --> 0:21:56.480 regulation f D I put two thousand thirteen wrong. That 0:21:56.640 --> 0:22:00.480