1 00:00:00,080 --> 00:00:06,760 Speaker 1: Bloomberg Audio Studios, Podcasts, radio news. 2 00:00:11,600 --> 00:00:15,440 Speaker 2: This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferrow, along 3 00:00:15,440 --> 00:00:18,680 Speaker 2: with Lisa Bromwitz and Amrie Hordern. Join us each day 4 00:00:18,720 --> 00:00:22,239 Speaker 2: for insight from the best in markets, economics, and geopolitics 5 00:00:22,400 --> 00:00:24,880 Speaker 2: from our global headquarters in New York City. We are 6 00:00:24,920 --> 00:00:27,680 Speaker 2: live on Bloomberg Television weekday mornings from six to nine 7 00:00:27,680 --> 00:00:31,280 Speaker 2: am Eastern. Subscribe to the podcast on Apple, Spotify or 8 00:00:31,280 --> 00:00:33,919 Speaker 2: anywhere else you listen, and as always on the Bloomberg 9 00:00:34,000 --> 00:00:36,520 Speaker 2: Terminal and the Bloomberg Business app at. 10 00:00:36,760 --> 00:00:37,839 Speaker 3: Any of youant any research. 11 00:00:38,000 --> 00:00:41,400 Speaker 2: Staying bullish, three consecutive years of double digit games don't 12 00:00:41,440 --> 00:00:45,440 Speaker 2: happen too often. Nevertheless, that's what we're expecting. We see 13 00:00:45,440 --> 00:00:48,000 Speaker 2: the S and P five hundred increasing nineteen percent this 14 00:00:48,120 --> 00:00:50,839 Speaker 2: year to seven thousand. However, we think it could be 15 00:00:50,840 --> 00:00:53,840 Speaker 2: a bumpiercent than in recent years. ED joined us for 16 00:00:53,880 --> 00:00:56,240 Speaker 2: more in the flesh. Good to see you, sir, Thank you. 17 00:00:56,440 --> 00:00:59,280 Speaker 2: Happy new year. Let's start with that double digit expectation 18 00:00:59,440 --> 00:01:01,920 Speaker 2: for twenty two twenty five with some volatility. 19 00:01:01,960 --> 00:01:04,120 Speaker 3: What's different about this year compared to last? 20 00:01:04,400 --> 00:01:07,360 Speaker 4: Well, I think we're starting off with more uncertainty. On 21 00:01:07,400 --> 00:01:10,960 Speaker 4: both monetary and fiscal policies. We really don't know how 22 00:01:11,280 --> 00:01:15,320 Speaker 4: all these different policies that the Trump administration will introduce 23 00:01:15,640 --> 00:01:18,040 Speaker 4: basically from day one. Sure, there's going to be something 24 00:01:18,080 --> 00:01:20,959 Speaker 4: like twenty twenty five executive orders. 25 00:01:22,720 --> 00:01:24,840 Speaker 5: Coming very shortly after the inauguration. 26 00:01:25,840 --> 00:01:27,520 Speaker 4: The problem is we don't really know how these things 27 00:01:27,560 --> 00:01:30,679 Speaker 4: are all intermix. It's kind of like a doctor prescribing 28 00:01:30,720 --> 00:01:33,080 Speaker 4: a whole bunch of different medications to you and didn't 29 00:01:33,120 --> 00:01:35,759 Speaker 4: check the computer that some of them don't interact to. Well, 30 00:01:36,040 --> 00:01:41,520 Speaker 4: so we'll see how deportation and deregulation and tax cuts 31 00:01:41,560 --> 00:01:44,800 Speaker 4: and terrify increases and what that implies for the deficit, 32 00:01:45,280 --> 00:01:48,880 Speaker 4: all mixed together. And meanwhile, the assumption is that the 33 00:01:48,920 --> 00:01:52,520 Speaker 4: Republicans are in a position to get everything through. Well, 34 00:01:52,520 --> 00:01:54,640 Speaker 4: maybe that's not quite the case. They've screwed it up 35 00:01:54,640 --> 00:01:57,920 Speaker 4: before they could do it again, I suppose. So, Well, 36 00:01:58,240 --> 00:02:02,000 Speaker 4: there's a lot of uncertainty on the administration's policies. And 37 00:02:02,040 --> 00:02:06,280 Speaker 4: then monetary policy is on pause right now, and the 38 00:02:06,360 --> 00:02:07,680 Speaker 4: question is how long? 39 00:02:07,720 --> 00:02:09,559 Speaker 5: And I think for a while. 40 00:02:09,520 --> 00:02:10,679 Speaker 3: Let's stop the administration. 41 00:02:11,160 --> 00:02:13,120 Speaker 2: What are the assumptions that you've might have any they 42 00:02:13,120 --> 00:02:14,200 Speaker 2: come into your forecast. 43 00:02:14,720 --> 00:02:20,000 Speaker 4: Well, I'm basically acknowledging that I don't know how it's 44 00:02:20,000 --> 00:02:22,160 Speaker 4: all going to end up, but my gut feel is 45 00:02:22,200 --> 00:02:24,520 Speaker 4: that when you add it all up together, it'll be 46 00:02:24,720 --> 00:02:26,520 Speaker 4: unbalanced positive for the economy. 47 00:02:27,120 --> 00:02:27,960 Speaker 5: I think the other thing. 48 00:02:27,880 --> 00:02:31,000 Speaker 4: That's important to recognize, especially after the past three years experience, 49 00:02:31,440 --> 00:02:34,440 Speaker 4: is that the economy hasn't been, as you mentioned, as 50 00:02:34,480 --> 00:02:39,680 Speaker 4: Lisa mentioned, remarkably resilient to high interest rates, and so. 51 00:02:40,080 --> 00:02:42,560 Speaker 5: We really need you know, the economy is kind of like. 52 00:02:42,520 --> 00:02:46,440 Speaker 4: The Rodney danger field of all this doesn't get enough respect. 53 00:02:46,480 --> 00:02:49,560 Speaker 4: It's kind of its own dynamics. It's not totally dependent 54 00:02:49,960 --> 00:02:54,000 Speaker 4: on what happens in Washington, DC, and so I think 55 00:02:54,960 --> 00:02:57,800 Speaker 4: we are going to see a productivity boom, which I 56 00:02:57,800 --> 00:03:00,800 Speaker 4: think has already started, and that'll keep the economy movement 57 00:03:00,840 --> 00:03:04,600 Speaker 4: at a faster than expected pace, and that'll keep inflation down. 58 00:03:04,960 --> 00:03:08,240 Speaker 1: Do you think that rates and are fairly valued, even 59 00:03:08,240 --> 00:03:11,480 Speaker 1: though some people are saying, actually, maybe they're looking a 60 00:03:11,480 --> 00:03:13,840 Speaker 1: little cheap after the recent rise at the end of 61 00:03:13,880 --> 00:03:14,679 Speaker 1: last year. 62 00:03:14,960 --> 00:03:16,680 Speaker 5: You're talking about interest rates. 63 00:03:17,080 --> 00:03:21,000 Speaker 4: Well, on the interest rate front, I was not in 64 00:03:21,040 --> 00:03:24,720 Speaker 4: the camp expecting several rate cuts last year, and then 65 00:03:24,760 --> 00:03:28,200 Speaker 4: at the end of the last year, especially around September, 66 00:03:28,240 --> 00:03:33,560 Speaker 4: when the FED chair started talking extremely dubbishly. I couldn't 67 00:03:33,639 --> 00:03:37,119 Speaker 4: understand that. I mean, the economy is doing fine, Inflation 68 00:03:37,240 --> 00:03:40,200 Speaker 4: is pretty close to two percent, So what's the need 69 00:03:40,240 --> 00:03:44,000 Speaker 4: for lowering interest rates? I think we're I think we 70 00:03:44,040 --> 00:03:46,640 Speaker 4: are at neutral. I think we are where interest rates 71 00:03:46,880 --> 00:03:49,680 Speaker 4: should be. The economy is doing quite well with it, 72 00:03:50,160 --> 00:03:54,360 Speaker 4: and there's a lot of consumers, individuals, households that really 73 00:03:54,600 --> 00:03:57,520 Speaker 4: enjoy having interest rates at these levels, a lot better 74 00:03:57,560 --> 00:04:00,400 Speaker 4: than getting nothing for your money market funds, which is the. 75 00:04:00,400 --> 00:04:02,600 Speaker 1: Reason why somebody people have been piling into cash. It 76 00:04:02,680 --> 00:04:05,280 Speaker 1: raises a question, if we do see a third year 77 00:04:05,400 --> 00:04:07,840 Speaker 1: of double digit returns of the nineteen percent gains that 78 00:04:07,960 --> 00:04:11,280 Speaker 1: you foresee, is that going to be concentrated again in 79 00:04:11,320 --> 00:04:13,320 Speaker 1: the same leadership, given the fact that a lot of 80 00:04:13,320 --> 00:04:16,320 Speaker 1: the equal way, the broadening out types of beliefs really 81 00:04:16,320 --> 00:04:18,400 Speaker 1: stemmed from the idea of lower interest rates. 82 00:04:18,600 --> 00:04:23,200 Speaker 4: Yeah, well, look, I think that lower interest rates certainly 83 00:04:23,240 --> 00:04:26,520 Speaker 4: help smid caps, small and mid cap stocks, and we 84 00:04:26,600 --> 00:04:29,680 Speaker 4: had a couple of instances last year where all this 85 00:04:29,760 --> 00:04:34,279 Speaker 4: excitement about rates coming down got them to do reasonably well. 86 00:04:34,560 --> 00:04:36,840 Speaker 4: And then it's all kind of fizzled the part in 87 00:04:37,120 --> 00:04:40,960 Speaker 4: December as great expectations changed and suddenly maybe the FED 88 00:04:41,080 --> 00:04:43,279 Speaker 4: is not going to be lowering interest rates as much, 89 00:04:43,640 --> 00:04:46,760 Speaker 4: and so okay, everybody piles back in into the Magnificent seven. 90 00:04:47,480 --> 00:04:50,240 Speaker 5: But I like the S and P four hundred and 91 00:04:50,320 --> 00:04:50,880 Speaker 5: ninety three. 92 00:04:51,760 --> 00:04:54,800 Speaker 4: They've lagged behind. And you know, I think when you 93 00:04:54,880 --> 00:04:57,680 Speaker 4: look at an S and P five hundred portfolio, the 94 00:04:57,720 --> 00:05:00,680 Speaker 4: way I look at it is all stocks, and there 95 00:05:00,720 --> 00:05:03,440 Speaker 4: are technology stocks. They either make it or they use it. 96 00:05:03,480 --> 00:05:05,000 Speaker 4: If you don't use it, you're gonna lose it. You're 97 00:05:05,040 --> 00:05:08,960 Speaker 4: not going to be competitive. So I think we have yet. 98 00:05:08,920 --> 00:05:09,560 Speaker 5: To see. 99 00:05:10,960 --> 00:05:16,000 Speaker 4: Companies announce and demonstrate that all these technologies that are 100 00:05:16,040 --> 00:05:19,920 Speaker 4: out there, not just artificial intelligence, but robotics, automation, and 101 00:05:20,279 --> 00:05:24,920 Speaker 4: just thinking about changing your procedures in a way that 102 00:05:25,000 --> 00:05:27,720 Speaker 4: makes workers more productive. A lot of that's going on, 103 00:05:28,080 --> 00:05:29,719 Speaker 4: and we are actually seeing it in the data. 104 00:05:29,839 --> 00:05:31,400 Speaker 5: My projection that we're. 105 00:05:31,320 --> 00:05:36,480 Speaker 4: In a productivity growth boom is really not so much 106 00:05:36,480 --> 00:05:39,719 Speaker 4: a forecast as it is an extrapolation. We've already seen 107 00:05:39,720 --> 00:05:41,960 Speaker 4: a pretty significant pickup in productivity. 108 00:05:41,960 --> 00:05:42,840 Speaker 5: I think it keeps going. 109 00:05:43,000 --> 00:05:45,080 Speaker 2: We'd love your thought on us Stale as well, so 110 00:05:45,400 --> 00:05:46,920 Speaker 2: that thought will comes to you in just a moment. 111 00:05:47,040 --> 00:05:49,800 Speaker 2: US Stale right now negative in the pre market has 112 00:05:49,880 --> 00:05:52,200 Speaker 2: been all morning off the bank and reporting the President 113 00:05:52,240 --> 00:05:56,279 Speaker 2: minding would block this Stale getting confirmation find it blocking 114 00:05:56,360 --> 00:06:00,839 Speaker 2: nip on Stale's proposed takeover of us Stale. The President's 115 00:06:00,880 --> 00:06:04,039 Speaker 2: saying the following, we need major US companies representing the 116 00:06:04,120 --> 00:06:07,440 Speaker 2: major share of US steel making capacity. That is why 117 00:06:07,480 --> 00:06:10,480 Speaker 2: I'm taking action to block this deal. He goes on 118 00:06:10,520 --> 00:06:13,120 Speaker 2: to say, US Steel will remain a proud American company 119 00:06:13,320 --> 00:06:17,120 Speaker 2: when this American owned, American operated by American union steel 120 00:06:17,120 --> 00:06:18,960 Speaker 2: workers the best in the world. 121 00:06:19,200 --> 00:06:21,920 Speaker 1: This raises the question of how this will be interpreted 122 00:06:22,160 --> 00:06:23,919 Speaker 1: next year. This seems to be in line with what 123 00:06:24,000 --> 00:06:26,640 Speaker 1: President elect Donald Trump was talking about that he also 124 00:06:26,640 --> 00:06:29,040 Speaker 1: would block this deal. But it comes at a time 125 00:06:29,200 --> 00:06:31,839 Speaker 1: where everyone is expecting a whole host of mergers and 126 00:06:31,880 --> 00:06:34,960 Speaker 1: acquisitions as a result of a loosening in some of 127 00:06:34,960 --> 00:06:38,240 Speaker 1: those parameters, and it raises a question what's national security, 128 00:06:38,600 --> 00:06:41,640 Speaker 1: what becomes political and what we'll get through at a 129 00:06:41,680 --> 00:06:44,320 Speaker 1: time when ostensibly this is going to be an administration 130 00:06:44,520 --> 00:06:45,880 Speaker 1: more amenable to mergers. 131 00:06:45,880 --> 00:06:47,719 Speaker 2: Stock is down in the free market by a round 132 00:06:47,720 --> 00:06:50,280 Speaker 2: about eight percent. And to bring you back into the conversation, 133 00:06:50,320 --> 00:06:52,440 Speaker 2: to build on what Lisa was saying, what's the signal 134 00:06:52,600 --> 00:06:54,320 Speaker 2: you take away from this. 135 00:06:55,520 --> 00:06:58,080 Speaker 5: From the steel announcement. 136 00:06:57,640 --> 00:07:01,600 Speaker 2: Blocking the deal? Tell what handket down, what countcat down? 137 00:07:02,160 --> 00:07:03,919 Speaker 4: I mean, I guess we have to conclude that the 138 00:07:03,960 --> 00:07:09,000 Speaker 4: Biden administration is still still in business. They haven't closed 139 00:07:09,000 --> 00:07:12,960 Speaker 4: the shop yet, but it is consistent with what Trump's 140 00:07:13,000 --> 00:07:17,640 Speaker 4: been pushing for, as you said, and it's also consistent 141 00:07:17,800 --> 00:07:23,720 Speaker 4: with a regime change in the Biden years and Obama years. 142 00:07:23,720 --> 00:07:26,840 Speaker 4: I think you could kind of combine those years together. 143 00:07:26,960 --> 00:07:30,560 Speaker 4: We had a lot of globalization, the idea that America's 144 00:07:30,560 --> 00:07:34,320 Speaker 4: interests were identical to global interests and we all had 145 00:07:34,400 --> 00:07:38,000 Speaker 4: to work together, kind of a Kumbayah kind of approach. 146 00:07:38,840 --> 00:07:42,480 Speaker 4: Now we have no Everybody pursues their own national interests 147 00:07:42,480 --> 00:07:45,320 Speaker 4: and we can talk about it and negotiate and work 148 00:07:45,360 --> 00:07:47,640 Speaker 4: things out, but you know, we're going to push for 149 00:07:47,680 --> 00:07:51,360 Speaker 4: our national interests. You push for your national interests. We'll 150 00:07:51,480 --> 00:07:54,200 Speaker 4: use our economic power to get what we want and 151 00:07:54,400 --> 00:07:56,800 Speaker 4: to try to cut back what we have to give 152 00:07:56,800 --> 00:07:59,280 Speaker 4: in return. And that's kind of the environment we're in 153 00:07:59,360 --> 00:07:59,680 Speaker 4: right now. 154 00:08:00,120 --> 00:08:02,680 Speaker 1: Real tension developing, especially at a time where people are 155 00:08:02,680 --> 00:08:06,760 Speaker 1: talking about potential external foreign investment in the United States 156 00:08:06,800 --> 00:08:08,520 Speaker 1: in order to gain a presence here at a time 157 00:08:08,520 --> 00:08:11,440 Speaker 1: where people are talking about mergers and acquisitions, the boom 158 00:08:11,480 --> 00:08:15,640 Speaker 1: that possibly could really lift banks in other financial firms, 159 00:08:16,320 --> 00:08:19,120 Speaker 1: how do you put that together with a real existential 160 00:08:19,200 --> 00:08:21,040 Speaker 1: question about what is national security? 161 00:08:21,280 --> 00:08:22,920 Speaker 6: What is going to be politically viable? 162 00:08:23,240 --> 00:08:27,000 Speaker 1: Will this administration, the Trump administration, be excited about the 163 00:08:27,040 --> 00:08:30,120 Speaker 1: idea of tie ups even in the tech space, Well, I. 164 00:08:30,040 --> 00:08:32,920 Speaker 4: Think that it'll be more leslie fair than we had 165 00:08:32,960 --> 00:08:37,720 Speaker 4: under the Biden administrations, as certainly we'll have more M 166 00:08:37,760 --> 00:08:41,400 Speaker 4: and A activity. I think it's been going on kind 167 00:08:41,400 --> 00:08:45,240 Speaker 4: of quietly in the tech field. It's just not public 168 00:08:45,280 --> 00:08:49,280 Speaker 4: because a lot of the deals are Microsoft buying. 169 00:08:50,520 --> 00:08:51,439 Speaker 5: A private company. 170 00:08:51,480 --> 00:08:54,400 Speaker 4: That's one of the frustrations that small cap managers have 171 00:08:54,600 --> 00:08:57,199 Speaker 4: is they spend all this time putting together a portfolio 172 00:08:57,280 --> 00:09:00,320 Speaker 4: of twenty great little companies and they expect that, you know, 173 00:09:00,600 --> 00:09:03,080 Speaker 4: only a few of them will become the next Microsoft, 174 00:09:03,080 --> 00:09:06,480 Speaker 4: and it never happens because Microsoft buys them. So I 175 00:09:06,480 --> 00:09:08,120 Speaker 4: think there's still a lot There is a lot of 176 00:09:08,320 --> 00:09:11,400 Speaker 4: M and A going on even now, But I don't 177 00:09:11,440 --> 00:09:15,200 Speaker 4: think the government's going to be as interventionists as we've 178 00:09:15,240 --> 00:09:16,360 Speaker 4: seen under Biden. 179 00:09:16,720 --> 00:09:19,320 Speaker 1: So you're unabashedly bullish. You do expect this to be 180 00:09:19,440 --> 00:09:22,960 Speaker 1: continue to be the roaring twenties. What is the potential 181 00:09:23,320 --> 00:09:25,160 Speaker 1: risks that you see out there at a time when 182 00:09:25,160 --> 00:09:27,560 Speaker 1: we're talking to some people about gold, some people about 183 00:09:27,600 --> 00:09:30,000 Speaker 1: the possible dissolution of some of the m and I. 184 00:09:29,960 --> 00:09:33,560 Speaker 4: Furvor, Well, you did mention that I'm looking for a 185 00:09:33,880 --> 00:09:36,319 Speaker 4: bumpy year, and I would say that a lot of 186 00:09:36,360 --> 00:09:38,720 Speaker 4: those bumps are going to be occurring over the next 187 00:09:39,000 --> 00:09:42,559 Speaker 4: few months. We certainly have the uncertainty about monetary and 188 00:09:42,600 --> 00:09:46,720 Speaker 4: fiscal policies, the bond vigilanties, my friends, the bond vigilantes 189 00:09:46,720 --> 00:09:49,520 Speaker 4: are acting up again, and the bond deals around four 190 00:09:49,559 --> 00:09:52,000 Speaker 4: and a half percent and getting a lot of questions, 191 00:09:52,360 --> 00:09:54,280 Speaker 4: not just only can we go back to five percent, 192 00:09:54,360 --> 00:09:56,559 Speaker 4: but could we breach that and go to six percent. 193 00:09:56,880 --> 00:09:58,880 Speaker 4: I wouldn't be surprised if we saw five percent, and 194 00:09:58,880 --> 00:10:01,319 Speaker 4: I would spook the market a short term basis, but 195 00:10:01,360 --> 00:10:03,800 Speaker 4: I think we'll find plenty of buyers at five percent, 196 00:10:03,960 --> 00:10:07,640 Speaker 4: just the way we did last time. And then of 197 00:10:07,679 --> 00:10:13,240 Speaker 4: course there's geopolitical concerns. The Middle East is still a mess. 198 00:10:13,800 --> 00:10:15,880 Speaker 4: You know, we have yet to see what Israel is 199 00:10:15,920 --> 00:10:18,440 Speaker 4: going to do next with regards to Iran and what 200 00:10:18,480 --> 00:10:21,000 Speaker 4: Iran will do next with regards to Israel, so that 201 00:10:21,000 --> 00:10:25,079 Speaker 4: that confrontation is still ongoing, as is Ukraine in Russia. 202 00:10:26,559 --> 00:10:28,679 Speaker 4: So I think, you know, you put it all together, 203 00:10:28,800 --> 00:10:31,960 Speaker 4: and at least for the first few weeks of the year, 204 00:10:32,520 --> 00:10:34,640 Speaker 4: I think there's a potential for the market two weekend 205 00:10:34,679 --> 00:10:37,920 Speaker 4: and maybe perhaps even a correction, but I would I 206 00:10:37,920 --> 00:10:40,120 Speaker 4: would view that as a buying opportunity. 207 00:10:40,360 --> 00:10:41,720 Speaker 3: Certainly weave for the last week. 208 00:10:41,920 --> 00:10:41,959 Speaker 7: ED. 209 00:10:42,120 --> 00:10:43,800 Speaker 2: It's good to say, sir, thank you. I did this 210 00:10:43,840 --> 00:10:46,200 Speaker 2: more often in person, absolutely thanks for being here at 211 00:10:46,480 --> 00:10:58,959 Speaker 2: any day of any research advestors looking at hats of 212 00:10:59,000 --> 00:11:02,440 Speaker 2: keydanks this month with next Friday's payrolls report followed by 213 00:11:02,520 --> 00:11:05,280 Speaker 2: CPI and a Federate decision at the end of the month. 214 00:11:05,480 --> 00:11:08,400 Speaker 2: Claudia Salm of New Century Advisors noting the FED summary 215 00:11:08,440 --> 00:11:12,160 Speaker 2: of Economic projections isn't living up to promises, writing tension 216 00:11:12,160 --> 00:11:14,760 Speaker 2: has been building around the SEP at the Power Feed. 217 00:11:15,080 --> 00:11:17,400 Speaker 2: The FED has long been data driven in its decisions, 218 00:11:17,440 --> 00:11:20,240 Speaker 2: but the complexities of the post pandemic economy have led 219 00:11:20,240 --> 00:11:23,240 Speaker 2: it seemingly to rely on data over forecast. Powell even 220 00:11:23,280 --> 00:11:26,079 Speaker 2: admitted as much at the press conference. Claudia jointed just 221 00:11:26,160 --> 00:11:28,440 Speaker 2: now for more, Laudia, welcome to the program and a 222 00:11:28,559 --> 00:11:30,040 Speaker 2: very happy new year to year. It's good to see 223 00:11:30,040 --> 00:11:33,200 Speaker 2: you once again. How is this complicating decision making on 224 00:11:33,240 --> 00:11:34,240 Speaker 2: the f WEBC. 225 00:11:35,640 --> 00:11:37,520 Speaker 8: Well, I think, you know, a real theme of the 226 00:11:37,600 --> 00:11:40,679 Speaker 8: last FMC meeting was how much uncertainty there is about 227 00:11:40,720 --> 00:11:43,440 Speaker 8: the outlook for twenty twenty five, and a lot of 228 00:11:43,440 --> 00:11:46,120 Speaker 8: that comes from policy uncertainty out of fiscal policy. 229 00:11:46,440 --> 00:11:48,920 Speaker 9: But you know, the FED has. 230 00:11:48,520 --> 00:11:54,440 Speaker 8: Increasingly underpower become very data driven, and it's hard to 231 00:11:54,440 --> 00:11:56,040 Speaker 8: believe it, but I think we're actually going to see 232 00:11:56,040 --> 00:11:58,240 Speaker 8: a year where the data plays an even bigger role, 233 00:11:58,600 --> 00:12:01,040 Speaker 8: and we already know that that can create a lot 234 00:12:01,080 --> 00:12:04,960 Speaker 8: of unnecessary volatility because it's hard to measure a thirty 235 00:12:04,960 --> 00:12:08,040 Speaker 8: trillion dollar economy in real time with a lot of accuracy. 236 00:12:08,400 --> 00:12:10,080 Speaker 9: So they were going to continue to see this. 237 00:12:10,080 --> 00:12:13,240 Speaker 8: Real overreaction, and we saw this yesterday with the initial 238 00:12:13,240 --> 00:12:16,880 Speaker 8: claims for unemployment data to just you know, these little 239 00:12:16,880 --> 00:12:19,839 Speaker 8: scraps of data we get on how how strong labor 240 00:12:19,840 --> 00:12:23,240 Speaker 8: market is how hot inflation is, you know, So buckle up. 241 00:12:23,320 --> 00:12:23,880 Speaker 3: Well, Claudie. 242 00:12:23,880 --> 00:12:26,319 Speaker 1: This is a reason why people can't liken the moment 243 00:12:26,320 --> 00:12:28,880 Speaker 1: that we're into a dark room with a blindfold on, 244 00:12:29,120 --> 00:12:31,719 Speaker 1: with lots of furniture, going around and trying not to 245 00:12:31,760 --> 00:12:34,520 Speaker 1: bump into anything because the data is messy. We keep 246 00:12:34,559 --> 00:12:37,719 Speaker 1: talking about distortions, but forecasts have been wrong and the 247 00:12:37,760 --> 00:12:40,800 Speaker 1: whole concept of transitory is a huge scar over this fed. 248 00:12:40,920 --> 00:12:44,160 Speaker 1: So is there a forecast or an economic model that 249 00:12:44,200 --> 00:12:46,839 Speaker 1: they should be following. And I'm asking you of this 250 00:12:46,960 --> 00:12:49,000 Speaker 1: some rule who has come out and talked about how 251 00:12:49,080 --> 00:12:52,640 Speaker 1: every rule has its exceptions and it's difficult to really 252 00:12:52,679 --> 00:12:53,760 Speaker 1: come up with these. 253 00:12:55,280 --> 00:12:59,120 Speaker 9: Right, Yeah, this is the past for a half year. 254 00:12:59,200 --> 00:13:01,640 Speaker 8: Have not been kind to rules or rules of thumb 255 00:13:01,720 --> 00:13:03,959 Speaker 8: or how it's usually in the past. But we also 256 00:13:04,200 --> 00:13:08,960 Speaker 8: can't become hamstrung by a mistake or a misjudgment that 257 00:13:09,160 --> 00:13:11,680 Speaker 8: was made in twenty twenty one about inflation. 258 00:13:11,880 --> 00:13:12,040 Speaker 5: Right. 259 00:13:12,080 --> 00:13:14,680 Speaker 8: We have moved forward and there are we've seen the 260 00:13:14,720 --> 00:13:17,839 Speaker 8: economy slowly overtime heal. We're seeing patterns that make a 261 00:13:17,880 --> 00:13:19,760 Speaker 8: lot more sense than they did in the early days 262 00:13:20,160 --> 00:13:24,000 Speaker 8: of the post pandemic recovery. So the FED, Yes, and 263 00:13:24,040 --> 00:13:26,319 Speaker 8: that's exactly how it feels in a dark room moving 264 00:13:26,360 --> 00:13:28,679 Speaker 8: We know there's furniture, but part of the Fed's job 265 00:13:28,760 --> 00:13:30,840 Speaker 8: is to help turn the lights on and at least 266 00:13:30,880 --> 00:13:31,520 Speaker 8: chart a path. 267 00:13:31,559 --> 00:13:33,960 Speaker 9: And yes, that could mean redirecting. 268 00:13:33,880 --> 00:13:37,600 Speaker 8: But to just well, you know what we do This 269 00:13:37,679 --> 00:13:39,320 Speaker 8: next year is going to be all about the data 270 00:13:39,360 --> 00:13:41,400 Speaker 8: points we get. That really sets up I think a 271 00:13:41,440 --> 00:13:45,120 Speaker 8: lot of unnecessary volatility, Like the FED is injecting volatility 272 00:13:45,160 --> 00:13:48,480 Speaker 8: because it's saying, just follow those data points, and we 273 00:13:48,600 --> 00:13:51,240 Speaker 8: know we get bounced around by them, so you kind 274 00:13:51,240 --> 00:13:54,400 Speaker 8: of you need to have a grand plan in terms 275 00:13:54,480 --> 00:13:57,320 Speaker 8: of how you're working your way through the years. It's tricky, 276 00:13:57,360 --> 00:14:00,640 Speaker 8: like the policy uncertainty is real for this for the FED. 277 00:14:00,679 --> 00:14:02,640 Speaker 8: So I'm not saying like I have an easy solution 278 00:14:02,760 --> 00:14:04,960 Speaker 8: for them, But now is not the time to back 279 00:14:05,000 --> 00:14:11,200 Speaker 8: away from some of the forward looking the heuristics that 280 00:14:11,280 --> 00:14:11,679 Speaker 8: we have. 281 00:14:12,160 --> 00:14:13,880 Speaker 1: Mom and Elerian I would agree with you, and he's 282 00:14:13,920 --> 00:14:17,439 Speaker 1: talked about this as much the whole over data point dependence. 283 00:14:17,679 --> 00:14:20,720 Speaker 1: What patterns are you observing that you think are going 284 00:14:20,760 --> 00:14:24,400 Speaker 1: to be important and prescriptive for what's to come in 285 00:14:24,400 --> 00:14:25,360 Speaker 1: the US economy? 286 00:14:27,080 --> 00:14:29,760 Speaker 8: Right, So I tend to I keep all eyes on 287 00:14:29,800 --> 00:14:32,200 Speaker 8: the labor market, and that's such a linchpin to the 288 00:14:32,480 --> 00:14:35,560 Speaker 8: resilient economy we've had and the ongoing recovery. In addition 289 00:14:35,600 --> 00:14:38,240 Speaker 8: to you know, millions of Americans lives really depend on 290 00:14:38,280 --> 00:14:41,480 Speaker 8: their paychecks. And this is one where I worry that 291 00:14:41,520 --> 00:14:43,800 Speaker 8: the FED is somewhat come placent. I think they're being 292 00:14:43,840 --> 00:14:46,720 Speaker 8: hyper visional mot inflation, as we know the FED often 293 00:14:46,760 --> 00:14:51,000 Speaker 8: is and should be. But their outlook that most of 294 00:14:51,000 --> 00:14:53,880 Speaker 8: the officials laid out in the last summer of economic projections, 295 00:14:53,880 --> 00:14:57,880 Speaker 8: there's a pretty optimistic one on the labor market and 296 00:14:57,960 --> 00:15:00,520 Speaker 8: basically saying, hey, we're back, We're back to normal, We're 297 00:15:00,560 --> 00:15:03,040 Speaker 8: back in think Mary Daily even use the words kind 298 00:15:03,040 --> 00:15:06,640 Speaker 8: of an equilibrium. Got one vacancy for one unemployed worker, 299 00:15:06,680 --> 00:15:08,440 Speaker 8: and it's close to what the FED things the long 300 00:15:08,520 --> 00:15:11,960 Speaker 8: run unemployment rate is, and they project that to stay 301 00:15:12,000 --> 00:15:14,000 Speaker 8: with us, like, hey, we've got back to equilibrium, We've 302 00:15:14,000 --> 00:15:14,840 Speaker 8: got back to a good place. 303 00:15:14,840 --> 00:15:15,760 Speaker 9: We're going to stay there. 304 00:15:16,080 --> 00:15:17,600 Speaker 8: And I think there's a lot of other dimensions you 305 00:15:17,600 --> 00:15:21,200 Speaker 8: can look at the labor market, particularly the differences between 306 00:15:21,200 --> 00:15:23,200 Speaker 8: the hiring and the firing. 307 00:15:23,840 --> 00:15:26,000 Speaker 9: When the hiring doesn't look so good. 308 00:15:26,040 --> 00:15:29,080 Speaker 8: The firing looks really pretty great, Like that's not typical 309 00:15:29,200 --> 00:15:32,520 Speaker 8: for a labor market, you know, that's in balance, that's 310 00:15:32,560 --> 00:15:35,840 Speaker 8: in equilibrium. And so I think there are some signs 311 00:15:36,080 --> 00:15:37,160 Speaker 8: and that's why we have to keep an eye on 312 00:15:37,160 --> 00:15:39,320 Speaker 8: out or the places where it doesn't make sense. 313 00:15:39,680 --> 00:15:40,600 Speaker 9: And in other big. 314 00:15:40,440 --> 00:15:43,120 Speaker 8: Pieces, we've had a big push from the increase in 315 00:15:43,200 --> 00:15:45,760 Speaker 8: labor supply from the immigration into this country, which has 316 00:15:45,800 --> 00:15:48,840 Speaker 8: been extraordinarily high in recent years. 317 00:15:48,880 --> 00:15:50,560 Speaker 9: And that that's turning. 318 00:15:50,880 --> 00:15:52,720 Speaker 8: Or even if we don't have mass deportations, we're not 319 00:15:52,760 --> 00:15:55,680 Speaker 8: going to have a big push from the outside immigration. 320 00:15:55,800 --> 00:15:58,240 Speaker 8: And that's an important that's been an important dynamic at 321 00:15:58,240 --> 00:15:59,920 Speaker 8: the labor market. We're going to watch it on Why 322 00:16:00,200 --> 00:16:01,720 Speaker 8: so I don't think things are as calm in the 323 00:16:01,800 --> 00:16:04,960 Speaker 8: labor market as the FED kind of in their latest. 324 00:16:04,560 --> 00:16:06,840 Speaker 9: Projection seems to view. 325 00:16:06,880 --> 00:16:08,120 Speaker 8: And I mean, you know, we're going to get our 326 00:16:08,120 --> 00:16:11,680 Speaker 8: first taste of the data next week for the with 327 00:16:11,800 --> 00:16:12,840 Speaker 8: the report. 328 00:16:12,800 --> 00:16:15,760 Speaker 2: Irol's coming on January tenth. Just quickly, Claudia, how unusual 329 00:16:15,760 --> 00:16:18,920 Speaker 2: would it be for unemployment to stabilize at these levels 330 00:16:19,000 --> 00:16:20,760 Speaker 2: after coming off the lows to the extent that they have. 331 00:16:23,400 --> 00:16:26,640 Speaker 8: It would be very unusual to stabilize and hold in 332 00:16:26,680 --> 00:16:29,000 Speaker 8: this place for like the next three years, which is 333 00:16:29,120 --> 00:16:32,880 Speaker 8: essentially what the FED is projecting. But that's saying that 334 00:16:32,920 --> 00:16:35,000 Speaker 8: we're in a good place and we're going to stay there. 335 00:16:35,320 --> 00:16:38,600 Speaker 8: But we have there is a sense that, you know, 336 00:16:38,680 --> 00:16:41,280 Speaker 8: barring a lot of this policy uncertainty, this year twenty 337 00:16:41,320 --> 00:16:42,280 Speaker 8: twenty five really. 338 00:16:42,080 --> 00:16:44,880 Speaker 9: Could could be. It still could be, but it was 339 00:16:44,920 --> 00:16:45,800 Speaker 9: don't have to be. 340 00:16:46,320 --> 00:16:48,560 Speaker 8: Like we get to the sustainable place, we work out 341 00:16:48,600 --> 00:16:49,960 Speaker 8: some of the last disruptions. 342 00:16:50,600 --> 00:16:52,280 Speaker 9: So we'll see. 343 00:16:52,560 --> 00:16:53,280 Speaker 3: I hope you're right. 344 00:16:53,360 --> 00:16:56,040 Speaker 2: Clodia Samp of New Century Advice is Cludia, appreciate your time. 345 00:16:56,240 --> 00:16:56,520 Speaker 3: Thank you. 346 00:16:56,560 --> 00:17:08,920 Speaker 2: I think we all hope Clodius right. Stephanie Roth the 347 00:17:08,960 --> 00:17:10,960 Speaker 2: full free search market banner of Banks of America joining 348 00:17:11,040 --> 00:17:12,240 Speaker 2: us run a table to the turf you. 349 00:17:12,400 --> 00:17:13,600 Speaker 3: Good morning and a happy new year. 350 00:17:13,760 --> 00:17:14,240 Speaker 7: Good morning. 351 00:17:14,280 --> 00:17:16,800 Speaker 2: Let's see you both. Let's start with you, Stephanie. Expectations 352 00:17:16,840 --> 00:17:19,160 Speaker 2: for a week today in a payrolls report. 353 00:17:19,359 --> 00:17:21,399 Speaker 10: Yeah, so we're looking for one seventy five on payrolls, 354 00:17:21,440 --> 00:17:23,520 Speaker 10: which sounds a little higher relative to expectations. 355 00:17:24,040 --> 00:17:26,400 Speaker 6: But I think the surprise from the report. 356 00:17:26,280 --> 00:17:28,040 Speaker 10: Just given where markets are, is that it could come 357 00:17:28,080 --> 00:17:30,760 Speaker 10: into the soft side forgetting about the headline number. There 358 00:17:30,800 --> 00:17:33,840 Speaker 10: could be download revisions to the prior two months, And importantly, 359 00:17:33,880 --> 00:17:35,719 Speaker 10: we're looking for an unemployment rate that could take up 360 00:17:35,720 --> 00:17:38,280 Speaker 10: a little bit higher than what expectations are looking for. 361 00:17:38,520 --> 00:17:40,480 Speaker 10: So there might just be some soft pieces of the 362 00:17:40,560 --> 00:17:43,639 Speaker 10: report that at the margin could put some downward pressure 363 00:17:43,640 --> 00:17:44,000 Speaker 10: on yields. 364 00:17:44,000 --> 00:17:45,040 Speaker 3: Where's the weakness come from? 365 00:17:45,040 --> 00:17:46,680 Speaker 2: Because I think the book was right now would say 366 00:17:46,760 --> 00:17:48,960 Speaker 2: claims to low lay off the low things look pretty good. 367 00:17:49,240 --> 00:17:49,880 Speaker 3: What looks bad? 368 00:17:50,280 --> 00:17:52,119 Speaker 10: The breath hasn't been very good in terms of hiring. 369 00:17:52,160 --> 00:17:55,280 Speaker 10: That's been quite disappointing. A lot of the gains have 370 00:17:55,320 --> 00:17:58,239 Speaker 10: been driven by healthcare and government, and that's not a 371 00:17:58,280 --> 00:18:00,800 Speaker 10: sign of a really really strong labor So we think 372 00:18:00,800 --> 00:18:02,760 Speaker 10: the lead market is fine. We think the underlying trend 373 00:18:02,760 --> 00:18:05,280 Speaker 10: is one hundred and forty thousand, but at the margin 374 00:18:05,320 --> 00:18:07,560 Speaker 10: that's probably a little bit softer than where consensus is 375 00:18:07,560 --> 00:18:08,480 Speaker 10: at the moment mark. 376 00:18:08,480 --> 00:18:10,800 Speaker 1: We were talking earlier with Claudia sam and she was 377 00:18:10,840 --> 00:18:13,159 Speaker 1: talking about how the FED has really injected a lot 378 00:18:13,200 --> 00:18:15,480 Speaker 1: of volatility into the market and the rates of market 379 00:18:15,520 --> 00:18:18,960 Speaker 1: in particular, as a result of its data point dependence. 380 00:18:19,240 --> 00:18:21,280 Speaker 1: Do you expect there to be quite a bit of 381 00:18:21,320 --> 00:18:24,760 Speaker 1: volatility either way, if there is any kind of surprise 382 00:18:24,800 --> 00:18:26,760 Speaker 1: whatsoever on Friday's payrolls. 383 00:18:26,440 --> 00:18:28,280 Speaker 11: We do we also think that volatility is going to 384 00:18:28,280 --> 00:18:30,640 Speaker 11: be a little bit higher in the rates market this year, 385 00:18:30,880 --> 00:18:33,200 Speaker 11: simply because the FED is so data dependent and there's 386 00:18:33,200 --> 00:18:35,840 Speaker 11: still so much we don't know about next year, how 387 00:18:35,880 --> 00:18:38,080 Speaker 11: will all these economic policies take shape, what will the 388 00:18:38,119 --> 00:18:40,919 Speaker 11: impacts be, and so we do think that a very 389 00:18:40,960 --> 00:18:43,960 Speaker 11: data dependent FED in that context, we'll just keep ratevall 390 00:18:44,000 --> 00:18:46,440 Speaker 11: a little bit higher than it otherwise would have. Now, 391 00:18:46,440 --> 00:18:48,040 Speaker 11: if we get the kind of number that Stephanie was 392 00:18:48,080 --> 00:18:51,879 Speaker 11: talking about, if we see some softness in the underlying data, 393 00:18:52,000 --> 00:18:53,880 Speaker 11: we do think that there's pretty good potential for rates 394 00:18:53,920 --> 00:18:56,800 Speaker 11: to move quite a bit lower, largely because we think 395 00:18:56,800 --> 00:18:59,280 Speaker 11: that there's so much good news that's priced into the 396 00:18:59,320 --> 00:19:03,040 Speaker 11: market right now, there's so much optimism about US growth 397 00:19:03,040 --> 00:19:07,159 Speaker 11: remaining strong, about around elevated risk asset valuations, that if 398 00:19:07,160 --> 00:19:09,360 Speaker 11: you start to see any wobbles in the economy, then 399 00:19:09,440 --> 00:19:11,840 Speaker 11: we do think that there's a fair amount of reassessment 400 00:19:11,920 --> 00:19:13,320 Speaker 11: that's going to have to happen, and that should mean 401 00:19:13,359 --> 00:19:13,960 Speaker 11: lower rates. 402 00:19:14,040 --> 00:19:17,040 Speaker 1: Do you think that that's the bigger potential surprise is 403 00:19:17,160 --> 00:19:20,359 Speaker 1: actually some weakness that spurs a rally just based on 404 00:19:20,520 --> 00:19:23,080 Speaker 1: the positioning so far a rate rally. 405 00:19:23,160 --> 00:19:23,360 Speaker 7: Yes. 406 00:19:23,760 --> 00:19:27,359 Speaker 11: Look, we generally perceive that right now optimism in the 407 00:19:27,400 --> 00:19:30,159 Speaker 11: market is extremely elevated, and we've seen that over the 408 00:19:30,240 --> 00:19:33,080 Speaker 11: last few months. There's a great deal of expectation that 409 00:19:33,080 --> 00:19:35,200 Speaker 11: this is going to be a super growth friendly administration 410 00:19:35,920 --> 00:19:38,640 Speaker 11: and that their scorecard is going to be the SMP. 411 00:19:38,920 --> 00:19:42,199 Speaker 11: And that's essentially we think driven risk assets to very 412 00:19:42,240 --> 00:19:44,960 Speaker 11: very elevated values, whereas we think that the range of 413 00:19:44,960 --> 00:19:47,800 Speaker 11: outcomes next year is much wider. We don't know exactly 414 00:19:47,880 --> 00:19:49,760 Speaker 11: what the policies will be, we don't know what the 415 00:19:49,760 --> 00:19:52,159 Speaker 11: impact on the economy will be, and as a result 416 00:19:52,160 --> 00:19:53,840 Speaker 11: of that, we think that there's a little bit of 417 00:19:53,880 --> 00:19:57,520 Speaker 11: a mismatch there elevated optimism versus a very wide range 418 00:19:57,520 --> 00:19:59,639 Speaker 11: of outcomes, and we do think that should be supported 419 00:19:59,680 --> 00:20:01,959 Speaker 11: for d at least in the early part of next year. 420 00:20:02,000 --> 00:20:04,760 Speaker 2: Stephaniel one policy, what assumptions if you made about policy 421 00:20:04,840 --> 00:20:08,000 Speaker 2: changes from the Incomic administration for the next year or so. 422 00:20:08,000 --> 00:20:10,920 Speaker 10: So for this year, we think it'll be mostly that deregulation, 423 00:20:11,119 --> 00:20:12,479 Speaker 10: which is a positive for growth. 424 00:20:12,720 --> 00:20:15,240 Speaker 6: The tariff thing is, of course one of the biggest questions. 425 00:20:15,280 --> 00:20:17,080 Speaker 10: We don't think that will happen until later this year, 426 00:20:17,480 --> 00:20:20,800 Speaker 10: partially because they want to tie that to TCJA, And importantly, 427 00:20:20,840 --> 00:20:22,720 Speaker 10: like like Mark said, there's a ton of uncertainty when 428 00:20:22,720 --> 00:20:24,560 Speaker 10: we're thinking about policy, but we think a lot of 429 00:20:24,600 --> 00:20:26,359 Speaker 10: it's going to be relevant for twenty twenty six rather 430 00:20:26,440 --> 00:20:27,400 Speaker 10: than twenty twenty five. 431 00:20:27,920 --> 00:20:29,679 Speaker 6: But it's not likely to be that stimulative. 432 00:20:29,760 --> 00:20:29,920 Speaker 10: Right. 433 00:20:29,960 --> 00:20:32,440 Speaker 6: The TCJA is a four trillion dollar. 434 00:20:33,000 --> 00:20:36,120 Speaker 10: Tax bill that's going to be just keeping policy as is. 435 00:20:36,240 --> 00:20:38,720 Speaker 10: It's just to keep policy largely steady. There's going to 436 00:20:38,720 --> 00:20:40,560 Speaker 10: be a couple of things that could at the margin 437 00:20:40,600 --> 00:20:42,480 Speaker 10: be growth positive, but then we have tariffs, which are 438 00:20:42,520 --> 00:20:43,280 Speaker 10: a massive headwind. 439 00:20:43,320 --> 00:20:44,080 Speaker 3: Well just on tariff. 440 00:20:44,080 --> 00:20:46,280 Speaker 2: So you're saying that the primary objective of tariffs will 441 00:20:46,280 --> 00:20:49,800 Speaker 2: be for revenue raising purposes from the incomic administration. Is 442 00:20:49,800 --> 00:20:51,400 Speaker 2: that what you're suggested when you're saying that two will 443 00:20:51,400 --> 00:20:52,360 Speaker 2: be tied at the end. 444 00:20:52,320 --> 00:20:52,800 Speaker 3: Of next year. 445 00:20:52,920 --> 00:20:54,960 Speaker 10: I don't know if it's necessarily the primary objective. I 446 00:20:55,000 --> 00:20:58,520 Speaker 10: think the primary objective is you know, Trump genuinely believes 447 00:20:58,560 --> 00:21:00,919 Speaker 10: in tariffs, but then they do raids a lot of revenues, 448 00:21:00,960 --> 00:21:02,440 Speaker 10: and that's something that they're going to need a whole 449 00:21:02,480 --> 00:21:03,320 Speaker 10: lot of when they're thinking. 450 00:21:03,160 --> 00:21:03,800 Speaker 6: About the stack back. 451 00:21:04,160 --> 00:21:05,840 Speaker 2: But as you mentioned this, and I think it's important 452 00:21:05,960 --> 00:21:09,159 Speaker 2: policy changes if one think anticipating the economic consequence of 453 00:21:09,200 --> 00:21:11,240 Speaker 2: them is quite another. It's not obvious to me how 454 00:21:11,280 --> 00:21:14,640 Speaker 2: inflationary or not tarris would be depends on how they're 455 00:21:14,680 --> 00:21:17,879 Speaker 2: put together, how they're executed, whether you get retaliation also 456 00:21:17,880 --> 00:21:21,520 Speaker 2: completely depends on what happens olsewhere in foreign exchange, investment 457 00:21:21,600 --> 00:21:23,840 Speaker 2: decisions made by companies ousewere that want to be in 458 00:21:23,880 --> 00:21:26,879 Speaker 2: the United States, and one exposure to the US economic story. 459 00:21:27,040 --> 00:21:30,240 Speaker 2: What kind of assumptions can you make on changes in consequences. 460 00:21:30,600 --> 00:21:33,400 Speaker 11: I think it's really challenging for Stephanie and other economists. 461 00:21:33,480 --> 00:21:35,040 Speaker 11: Look are economists, I think have done a very good 462 00:21:35,119 --> 00:21:37,639 Speaker 11: job trying to dimension, to the best of their ability 463 00:21:37,720 --> 00:21:40,920 Speaker 11: what the key considerations are. But they'll be the first 464 00:21:40,960 --> 00:21:43,840 Speaker 11: to tell you that the range of outcomes is extremely 465 00:21:43,880 --> 00:21:47,040 Speaker 11: wide and that their confidence around these assumptions that they're 466 00:21:47,080 --> 00:21:50,000 Speaker 11: making is extremely low. And you're right, Jonathan, there are 467 00:21:50,040 --> 00:21:52,840 Speaker 11: so many other things that can impact the potential inflationary 468 00:21:53,440 --> 00:21:57,159 Speaker 11: consequences of tars. Look at CNY overnight right seven point three, 469 00:21:57,400 --> 00:22:00,719 Speaker 11: So you're starting to see the FX markets some of 470 00:22:00,760 --> 00:22:03,040 Speaker 11: this in and to have a lot of confidence around 471 00:22:03,080 --> 00:22:06,200 Speaker 11: what the overall economic outcome will be is we think 472 00:22:06,320 --> 00:22:08,960 Speaker 11: very very it's very, very difficult at this point in 473 00:22:09,000 --> 00:22:12,359 Speaker 11: time now to be overly concerned around inflation. Yes, some 474 00:22:12,440 --> 00:22:15,320 Speaker 11: of these policies could indeed be inflationary, they were not 475 00:22:15,440 --> 00:22:18,440 Speaker 11: terribly inflationary last time. And what we think the market 476 00:22:18,480 --> 00:22:20,840 Speaker 11: should be spending a little bit more time is trying 477 00:22:20,840 --> 00:22:22,879 Speaker 11: to think about, Okay, well, what is the Fed's reaction function. 478 00:22:23,920 --> 00:22:27,199 Speaker 11: Last time, their bias was to look through any potential 479 00:22:27,280 --> 00:22:29,960 Speaker 11: inflationary impact or released us what the transcripts tell us. 480 00:22:30,320 --> 00:22:32,640 Speaker 11: This time, of course, the macro backdrop is different, core 481 00:22:32,680 --> 00:22:34,840 Speaker 11: PC is more elevated. We just went through a very 482 00:22:34,840 --> 00:22:37,680 Speaker 11: inflationary period. So will their reaction function be the same. 483 00:22:37,880 --> 00:22:39,840 Speaker 11: We don't know yet, but to me, that's what I'm 484 00:22:39,840 --> 00:22:42,320 Speaker 11: going to be looking for to think about what the 485 00:22:42,359 --> 00:22:44,359 Speaker 11: impact is to the bond market. And right now my 486 00:22:44,480 --> 00:22:46,919 Speaker 11: bias is still to believe and our team's bias is 487 00:22:46,920 --> 00:22:49,800 Speaker 11: still to believe that the fed's likely impact will be 488 00:22:49,880 --> 00:22:52,679 Speaker 11: to look through to the extent that they can especially 489 00:22:52,680 --> 00:22:54,560 Speaker 11: if they start to see that tariffs have any type 490 00:22:54,560 --> 00:22:57,880 Speaker 11: of negative growth impact. Finally, look, just to go back 491 00:22:57,880 --> 00:22:59,439 Speaker 11: to some of the points that Stephanie made, I think 492 00:22:59,440 --> 00:23:00,200 Speaker 11: they're really good. 493 00:23:01,080 --> 00:23:02,399 Speaker 7: Just think about where the market. 494 00:23:02,200 --> 00:23:05,360 Speaker 11: Narrative is right now, and what Stephanie said, the policies 495 00:23:05,400 --> 00:23:08,640 Speaker 11: are probably not going to be all that stimulative impact 496 00:23:08,800 --> 00:23:12,760 Speaker 11: mostly in twenty twenty six, not twenty twenty five. Where 497 00:23:12,800 --> 00:23:15,199 Speaker 11: is the market right now? Look, you two talk to 498 00:23:15,240 --> 00:23:17,159 Speaker 11: a lot of people. You'll know probably better than me. 499 00:23:17,560 --> 00:23:19,480 Speaker 11: I talk to a lot of clients as well. I 500 00:23:19,680 --> 00:23:22,440 Speaker 11: generally think that client's mind frame is that these policies 501 00:23:22,440 --> 00:23:24,800 Speaker 11: are going to be impactful near term and that they 502 00:23:24,840 --> 00:23:28,040 Speaker 11: will be quite stimulative. And again that's where we think 503 00:23:28,080 --> 00:23:31,080 Speaker 11: market optimism is. Range of outcoms is a lot wider, 504 00:23:31,119 --> 00:23:32,800 Speaker 11: and again for me as a rate strategist, I think 505 00:23:32,840 --> 00:23:36,280 Speaker 11: that probably means lower rates as you see some convergence 506 00:23:36,640 --> 00:23:36,919 Speaker 11: in this. 507 00:23:37,040 --> 00:23:38,600 Speaker 1: Well, we were just speaking of Edie Danny and he 508 00:23:38,680 --> 00:23:41,320 Speaker 1: actually came out with this fantastic analogy, which is essentially 509 00:23:41,359 --> 00:23:43,840 Speaker 1: that this is a doctor who prescribed all this different 510 00:23:43,840 --> 00:23:46,560 Speaker 1: medication without running it through without running it through the 511 00:23:46,560 --> 00:23:50,760 Speaker 1: computer to say which interacts with which raises this question 512 00:23:50,920 --> 00:23:54,399 Speaker 1: of how important is that mix of policies based on 513 00:23:54,440 --> 00:23:58,439 Speaker 1: where the economy is right now, Stephanie, from your vantage point, 514 00:23:58,640 --> 00:24:01,159 Speaker 1: Mark's talking about how he things too much optimism is 515 00:24:01,200 --> 00:24:04,760 Speaker 1: baked in from policy perspective. Is there too much optimism 516 00:24:05,119 --> 00:24:07,800 Speaker 1: baked in with respect to the economic data that we've 517 00:24:07,800 --> 00:24:10,240 Speaker 1: already gotten in terms of where we are coming from 518 00:24:10,600 --> 00:24:13,120 Speaker 1: and how much uh inflation is still in the economy 519 00:24:13,160 --> 00:24:14,359 Speaker 1: and how much momentum there is. 520 00:24:14,520 --> 00:24:16,760 Speaker 10: Yeah, I think that's totally fair. The part part of this, 521 00:24:16,920 --> 00:24:18,840 Speaker 10: these things go hand in hand. So what's making to 522 00:24:18,880 --> 00:24:21,480 Speaker 10: the rates market is the expectation that the economy is 523 00:24:21,560 --> 00:24:25,000 Speaker 10: running on all cylinders r quite quite strong, and like, yeah, 524 00:24:25,040 --> 00:24:27,880 Speaker 10: it is, but it's probably not quite as strong as 525 00:24:27,920 --> 00:24:31,280 Speaker 10: a as as the outlook suggests. And the FMC kind 526 00:24:31,320 --> 00:24:33,760 Speaker 10: of introduced a little bit of uh uh, you know, 527 00:24:33,800 --> 00:24:36,800 Speaker 10: extra optimism about the economy that's probably gonna gonna disappoint 528 00:24:36,800 --> 00:24:39,440 Speaker 10: to some extent. We'll probably see payrolls running a little 529 00:24:39,440 --> 00:24:42,280 Speaker 10: bit slower, allow them to actually cut certainly two times 530 00:24:42,280 --> 00:24:44,040 Speaker 10: this year, and the market's pricing in a little bit 531 00:24:44,080 --> 00:24:44,560 Speaker 10: less than that. 532 00:24:44,840 --> 00:24:47,959 Speaker 6: So the economy's running just fine, but the expectation. 533 00:24:47,600 --> 00:24:50,920 Speaker 10: Is similar to what Mark just said, that Trump's policies 534 00:24:50,960 --> 00:24:54,360 Speaker 10: are gonna be incredibly you know, growth positive, and they're 535 00:24:54,359 --> 00:24:57,640 Speaker 10: gonna be happening right now, and they're probably not. It's 536 00:24:57,640 --> 00:24:58,960 Speaker 10: gonna take a while for a lot of the stuff 537 00:24:58,960 --> 00:24:59,360 Speaker 10: to play out. 538 00:24:59,400 --> 00:25:01,399 Speaker 1: Do you agree with Mark that the Fed's bias is 539 00:25:01,440 --> 00:25:03,200 Speaker 1: going to be to look through any of the temporary 540 00:25:03,200 --> 00:25:05,399 Speaker 1: effects of some of the tariffs. 541 00:25:05,680 --> 00:25:07,879 Speaker 10: I think that's what they should be doing, in the 542 00:25:07,880 --> 00:25:11,040 Speaker 10: sense that if they don't and they start becoming notably 543 00:25:11,040 --> 00:25:13,640 Speaker 10: more hawkish as a result, that could be a recipe 544 00:25:13,640 --> 00:25:16,720 Speaker 10: for a recession. In the sense that we are largely 545 00:25:16,720 --> 00:25:18,840 Speaker 10: of full employment, this. 546 00:25:18,840 --> 00:25:20,680 Speaker 6: Could become a real problem. 547 00:25:20,760 --> 00:25:23,920 Speaker 10: If we start to see, you know, the FED reaction 548 00:25:23,960 --> 00:25:26,400 Speaker 10: function look quite different than what it was last time, 549 00:25:26,480 --> 00:25:30,280 Speaker 10: we might have a real problem, in which case growth 550 00:25:30,560 --> 00:25:32,560 Speaker 10: is likely to slow down notably as a result of 551 00:25:32,600 --> 00:25:33,280 Speaker 10: these terriffs. 552 00:25:33,320 --> 00:25:34,680 Speaker 6: Sarah's are seculationary. 553 00:25:35,440 --> 00:25:37,320 Speaker 1: Mark, I'm just curious when you take a look at 554 00:25:37,320 --> 00:25:39,680 Speaker 1: the fed's reaction function. We were talking with Claudia sam 555 00:25:39,680 --> 00:25:42,320 Speaker 1: and she was saying that they have introduced as volatility. 556 00:25:42,320 --> 00:25:43,520 Speaker 6: We were just speaking about that. 557 00:25:44,280 --> 00:25:47,040 Speaker 1: She was saying that they should follow models a bit 558 00:25:47,080 --> 00:25:50,919 Speaker 1: more and in particular some of what she's seeing in 559 00:25:50,960 --> 00:25:54,520 Speaker 1: the employment market. What would you be following if you 560 00:25:54,560 --> 00:25:56,720 Speaker 1: were on the FED as your sort of load star 561 00:25:57,119 --> 00:25:58,680 Speaker 1: for where the economy was heading. 562 00:25:58,760 --> 00:26:02,280 Speaker 11: Yeah, look, in periods a very elevated uncertainty, which I 563 00:26:02,320 --> 00:26:04,040 Speaker 11: think we are in and are going to continue to 564 00:26:04,040 --> 00:26:06,000 Speaker 11: be in the early part of next year. We think 565 00:26:06,040 --> 00:26:08,760 Speaker 11: the most basic monetary policy rules can be very instructive, 566 00:26:08,840 --> 00:26:11,320 Speaker 11: like the tailor rule. Now, any model is only as 567 00:26:11,320 --> 00:26:12,800 Speaker 11: good as the assumptions that you want to make and 568 00:26:12,840 --> 00:26:15,560 Speaker 11: the inputs that you have into that. But we do 569 00:26:15,560 --> 00:26:17,520 Speaker 11: think that tailor has been a pretty good guide over 570 00:26:17,600 --> 00:26:19,879 Speaker 11: recent years. The FED does not, nor should they follow 571 00:26:19,920 --> 00:26:22,520 Speaker 11: it blindly, but they should use that as a meaningful input. 572 00:26:22,560 --> 00:26:24,920 Speaker 11: Other FED officials Chris Waller has talked about how they 573 00:26:25,280 --> 00:26:28,960 Speaker 11: do indeed do that, and right now at least they've 574 00:26:28,960 --> 00:26:31,679 Speaker 11: pretty much converged to near where Taylor suggests that they 575 00:26:31,720 --> 00:26:34,119 Speaker 11: will be. And the big question is what does the 576 00:26:34,200 --> 00:26:37,760 Speaker 11: data imply from here? The market thinks that the FED 577 00:26:37,800 --> 00:26:39,720 Speaker 11: will only need to cut about forty basis points more 578 00:26:39,720 --> 00:26:42,520 Speaker 11: and then they'll be done. But if you actually use 579 00:26:42,600 --> 00:26:46,560 Speaker 11: the FED zone economic projections in their SEP, the medians 580 00:26:46,640 --> 00:26:50,520 Speaker 11: and the unemployment rate as well as on inflation core PC, 581 00:26:51,400 --> 00:26:54,679 Speaker 11: it suggests that they should really be cutting, probably something 582 00:26:55,000 --> 00:26:57,679 Speaker 11: more close to one hundred basis points, And so it 583 00:26:57,720 --> 00:26:59,800 Speaker 11: really depends upon again, what are the core you can 584 00:27:00,160 --> 00:27:00,960 Speaker 11: assumptions that you have. 585 00:27:01,080 --> 00:27:02,439 Speaker 7: The market's very optimistic right now. 586 00:27:02,480 --> 00:27:04,320 Speaker 11: I think that growth is going to remain strong, the 587 00:27:04,400 --> 00:27:06,880 Speaker 11: unemployment rate won't rise much above four point two, maybe 588 00:27:06,960 --> 00:27:07,840 Speaker 11: four point three. 589 00:27:08,040 --> 00:27:09,359 Speaker 7: Inflation is going to stay sticky. 590 00:27:09,520 --> 00:27:11,719 Speaker 11: But if you do see inflation move down, or if 591 00:27:11,760 --> 00:27:13,920 Speaker 11: you do see the unemployment rate tick up a little 592 00:27:13,960 --> 00:27:16,000 Speaker 11: bit more, then the market's going to be talking about 593 00:27:16,000 --> 00:27:18,040 Speaker 11: a FED that could potentially be cutting a lot more 594 00:27:18,119 --> 00:27:21,480 Speaker 11: than what is currently pressed. Look just final point for me, 595 00:27:22,640 --> 00:27:24,960 Speaker 11: when I think about the Fed's reaction function more broadly, 596 00:27:25,000 --> 00:27:27,719 Speaker 11: and I think we in the rates team agree with this. 597 00:27:28,119 --> 00:27:31,840 Speaker 11: We generally believe that the Fed's going to overweight labor data, 598 00:27:32,600 --> 00:27:34,919 Speaker 11: and John, You're right, the labor market right now is 599 00:27:34,960 --> 00:27:35,480 Speaker 11: really strong. 600 00:27:35,520 --> 00:27:38,240 Speaker 7: Breadth is kind of narrow. We think that the labor market. 601 00:27:38,000 --> 00:27:40,000 Speaker 11: Can best be summarized as one where there's not a 602 00:27:40,040 --> 00:27:43,280 Speaker 11: lot of firing, but there's also an increasingly slower pace 603 00:27:43,320 --> 00:27:45,800 Speaker 11: of hiring, and the claims data very much points to 604 00:27:45,800 --> 00:27:48,320 Speaker 11: that it's still a very healthy labor market overall, but 605 00:27:48,359 --> 00:27:50,159 Speaker 11: continuing claims really, you know, if you look at a 606 00:27:50,160 --> 00:27:52,680 Speaker 11: four week moving average, they continue to edge up over 607 00:27:52,720 --> 00:27:56,200 Speaker 11: time while initial claims stay stable. And if that trend continues, 608 00:27:56,440 --> 00:27:57,680 Speaker 11: I do think that the Fed's going to be seeing 609 00:27:57,680 --> 00:27:59,760 Speaker 11: a labor market that maybe has less breadth than a 610 00:27:59,760 --> 00:28:03,200 Speaker 11: little bit more concern than at least what the most 611 00:28:03,200 --> 00:28:04,240 Speaker 11: recent FED meeting will be. 612 00:28:04,280 --> 00:28:05,800 Speaker 2: This I'd be the first one we acknowledge that it 613 00:28:05,800 --> 00:28:08,840 Speaker 2: won't say much much for downside surprise next week for 614 00:28:08,880 --> 00:28:10,399 Speaker 2: a lot of people who start pricing in more rate 615 00:28:10,440 --> 00:28:11,679 Speaker 2: cuts from the Federal Reserve. 616 00:28:11,800 --> 00:28:15,119 Speaker 1: Well, that's an interesting kind of dynamic that's changed in 617 00:28:15,240 --> 00:28:17,800 Speaker 1: terms of where the bias is for this rates market 618 00:28:17,840 --> 00:28:19,760 Speaker 1: and whether it's sort more for a rally than say 619 00:28:20,080 --> 00:28:20,680 Speaker 1: a sell off. 620 00:28:20,840 --> 00:28:22,800 Speaker 2: Mark Stephanitie to the two of you. Thank you, go 621 00:28:22,920 --> 00:28:24,640 Speaker 2: to see you both. Mark O Banner of Bank of America, 622 00:28:24,920 --> 00:28:29,400 Speaker 2: Stephanie Roth of Wolf Research. This is the Bloomberg Surveillants podcast, 623 00:28:29,560 --> 00:28:33,439 Speaker 2: bringing you the best in markets, economics, antient politics. You 624 00:28:33,480 --> 00:28:36,280 Speaker 2: can watch the show live on Bloomberg TV weekday mornings 625 00:28:36,280 --> 00:28:39,200 Speaker 2: from six am to nine am Eastern subscribe to the 626 00:28:39,240 --> 00:28:42,720 Speaker 2: podcast on Apple, Spotify or anywhere else you listen, and 627 00:28:42,800 --> 00:28:45,880 Speaker 2: as always, on the Bloomberg Terminal and the Bloomberg Business app.