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Terminal and the Bloomberg Business app. Two weeks away from a Federal Reserve raid decision two weeks tomorrow, Lindsey Piegser of Stiphail writing, the Fed should be on the verge of a pause in policy adjustment. While Fed officials are anxious to provide less firm policy after fourteen months at peak levels, the risk of unwinding policy too soon or too fast is a recognition of inflationary pressures and a reversal of the progress already made.
Lindsay joins us now for more.
Lindsey Gimonic, good morning, Thank you for having me.
What did you make a governor Walla? Yes, well, I.
Think this is really the general theme of what we're hearing from FED officials as of late. They're setting the bar noticeably higher for a potential pause, saying it's no longer about a strong or solid economy, but it's about the data outperforming expectations, or as we heard from Goulesby last week, it's about a potential economy overheating. So I do think that the FED is gearing up and excuse me to push through a third round rate cut in December.
But as we turn the calendar page next year, if the data remains as strong as it is, if the economy continues to prove remarkably solid, as Chairman Pouell described it, I do think they're going to be backed into a corner and forced to take a potential policy pause.
Near got to watch you what kind of data would change the conversation. I think Governor Walla compared fighting inflation to a UFC fight in the Ancticon yesterday. I'm not sure how helpful that is for people or not. What kind of number would it take?
Well, remember, looking out to Friday's non farm paywall reports, the strength is going to be out sized, or at least we expect that but that's going to be offsetting the weakness that we saw the month prior. So even a number two D two hundred and twenty thousand, I don't think that's going to be enough to deter the FED from pushing through that December rate cut.
MMA.
I think it was.
It was marginally yes, I think it was. Yeah, thank you, that's good. I just I'm still trying to wrap my head around the hard words that he had about getting inflaced in a headlock and driving it to the ground in the last round to the actual.
Okay, we're still going to cut rates.
I mean, it sort of raises this question, how much do you think that they are still underestimating the inflationary pressure in an economy where it's not about the labor market as much anymore as the inflation read that we get the following week.
Well, that's exactly right. The concern of this emerging weakness in the labor market prompted that outsize fifty bases point cut in September. We didn't see that weakness come to fruition, and so then they followed through with another twenty five simply because I think they were worried about having egg on their face or admitting a policy error being too aggressive the month prior. But to your point, they don't
have inflation in a choke hold. They need to keep their eye on the ball because the past several months inflation has really moved to the sideways with no further improvement to speak of. So at this point, yes, we have made discernible progress down from peak levels, but we still have that last mile to go, and now is not the time for the FED to give up on that goal.
Jum was asking earlier about this discussion arou our neutral rate, saying that there is quite a ways to go before you actually get to truly a neutral rate. At the same time that some of us are struggling to see the restrictiveness in terms of rates other than a couple of pockets for a couple of segments of the population, do you see us as anywhere close to restrictive.
So that's a good distinction that we need to be made, because right now policy still is very firm and changing conditions. Further improvement and disinflation does warrant less firm policy as we move towards neutral and the data normalize, but we need to do so at a very slow and tempered pace. So I don't think the question is do we justify
further rate cuts. I do see further rate cuts on the horizon, but the pathway, the pace to that lower level of FED funds needs to be very controlled as to not overshoot or undermine the progress that we've already seen made on the inflation front.
So how many cuts can you actually see next year when they have to recalibrate for potentially tariffs, tax cuts, and a whole host of new policies coming out of Washington.
Well, assuming they do push through the December cut, that's the third round cut, I see three more cuts in twenty five on a quarterly basis, so one twenty five basis point cut per quarter, getting us to three and three quarters by the third quarter. And I think that's a reasonable neutral level. Now, of course, some policy issues may limit the downside potential if we do see tariffs or sizeable tax cuts lead to further inflationary pressures. But
that's a big question mark. The inflationary pressures that we're assuming under those scenarios could very easily be offset if we saw sizable reductions in government spending or other areas, and so it still is questionable the net outcome from the incoming administration. But right now, ceteris parabis, I do expect three additional rate cuts next year, taking us to a neutral rate of about three seventy five if.
We get the December cut. How hawkish do you think the tone might be from Powell, because he's looking into a lot of unknowns for next year.
How much more hawkish you mean? At this point, he's talking about a remarkably solid economy, remarkably strong labor market, So he's really laid the groundwork for a pretty solid assessment of current conditions, again keeping that door wide open for a near term policy pause as soon as they deem it appropriate.
And again if.
December data comes in within expectations, I think the Fed continues to follow through with a third round cut, but they've already set the table for potential pause given the strength that we're seeing in the consumer, in business investment, even in housing, and that sticky nature of inflation.
So John has been trying to draw a parallel between JJ and Ping and rowpower today, a single.
Parallel, one similarity. Okay, carry on, would you want me to explain that similarity?
No, it's Okay, if you just join it, I'm not insane, you might think I am. There is one similarity. They've got to wait to calibrate policy, to work out what the policy changes will be in the United States.
That's the single similarity.
Do they and that's my question, Lindsey, do they have to Does j Powell have to wait to understand what the policies are similar to Jijiinping, who has to wait to understand what.
Policies are well calendar to wait.
I think that's been part why they want to push through this policy, this third round reduction in December before we get some of the details of these policies that will be associated with the incoming administration. But again, when that calendar page turns to twenty twenty five, if we're still talking about the strength that the data, that's where
the patience needs to come in. That's where we need to see the FED take a pause, move to the sidelines, and allow the data to continue to evolve to dictate the best course of policy.
It's also not obvious to me how inflationary terrorists will actually be given the first round experience, how they be calibrated this time. West Fargo put out their outlook for twenty twenty five this morning has said the most concerning effective TARIFST is on growth and not necessarily inflation. Working that out is actually not that obvious for next year and beyond.
There are a number of arguments that are legitimate saying that actually terrorists are disinflationary and that actually the more inflationary impulse is going to come from the immigration if there are a significant deportation. So it's a policy mix, it's a sequencing. It's just in terms of how they actually are carried out, all have a very big difference depending on how it goes.
Lindy, it's good to see you, catch up. Good to have you in New York. Thank you, Lindsay PX. The ho staful just tend to retail.
Let's squeeze this in adn't be explaining a cyber Monday splurge forecast and consumers spend thirteen zero point five billion dollars Oliver Chain of TD Coments saying, well, we see some selective opportunity for consumer holiday spending this year by and launch. The consumer remains choiceful and it is carefully balancing needs versus once. Olivi Chan joins US now for more. Oliver, Welcome to the program, sir. I want to start with luxury, as we often do with you. I want to ask
you a simple question. If luxury goes on sale, is it even luxury?
Well, that is a good, great question in terms of the balance of luxury and exclusivity. The best brands john don't go on sale, and those include Louis Vuitton and d Or so that brand does not go on sale. Other brands that have been struggling, including Gucci, we are seeing markdowns in the department store channel has been under pressure, so we're not recommending those stocks, which include Macy's and Nordstrom and others, and that's been something to watch.
The consumer remains focused on value.
As you know, Walmart has been a top idea and Walmart is really executing well with lots of great deals across food and consumables. Luxury is something to watch still, and as you mentioned earlier, the situation in China is more anemic growth as well, and that's something to consider,
and consumer confidence has been volatile. On the one hand, we have very low unemployment as well as a trillion dollars of savings on the sidelines, but consumers are being choiceful and watching and not buying everything in sight, really looking for the best bargains, and the best luxury brands do remain full price.
I appreciate your ability to jump between Gucci and Walmart. If we can just stay on Gucci, Oliver, and then we can move on. I want to sit on Gucci. I think this is important. I'm going to get in some hot water here, but here goes the kind of people that buy Gucci, the kind of people that want you to know they've bought Gucci, and I think that's
really important. They want the beut with a big Gucci emblem on it, and I just wonder how incompatible South wealth and quiet luxury is with that particular brand.
Well, we got to have both.
What's really happening at Gucci now is a return to timelessness and also elevation with a new designer.
We really like what he's doing.
However, these turnarounds take time, and we think it'll take a year in terms of rebooting the brand and also harmonizing service levels across the globe. They're also adding a lot of creative john to this. They'll be bigger and better shows and storytelling.
That's what really needs to happen at Gucci at the moment.
Quiet luxury, thinking about timelessness, elevated materials, that's really working in a way that luxury consumer is looking for value and items that they can use throughout.
But it's a little bit boring.
And conversely, a quiet luxury can be an excuse for no innovation.
What if that's true? So we really need to have both.
We need to have the exuberance and we need to have the fashion, and we need to have the quiet luxury. So a little bit of logo in the future be quite positive for Gucci.
Love it a little bit of logo.
So from logo back to Walmart, I'll talk about that. I am curious about how you have seen this outperformance and an ongoing basis this holiday shopping season from the online systems, and basically this has been the trend for a long time. How does this challenge companies at a time when it is less profitable for them to sell online where they have big physical stores that aren't necessarily getting the same kind of foot traffic as they have in prior years.
Retailers have to do everything everywhere, all at once. So the name of the game is channels such as curbside pickup, where you're doing more of the work in terms of the last mile.
Also, as you think.
About technology at large, the future of retail includes digital advertising as well as artificial intelligence, and then growing these marketplace models to have third party sellers, very similarly to Amazon.
So you're retaining a lot.
Of the productivity of the box and you're becoming less unprofitable and online, and that's happening at Walmart over time. It's a bigger challenge at Target, which is losing money online. The prospect for Walmart to become e commerce profitable that will happen within one to two years, in part because they have so much scale in their increasing delivery density. Also, consumers of all kinds are choosing to pay.
For express shipping.
That's happening as well, and Walmart's getting a higher household income consumer. So this really is difficult, but it all needs to work together. And digital advertising is a very high margin business seventy percent plus margins.
I'll big of an advantage do the likes of Walmart and am as at another large retailers that have these sort of multi channel businesses have When it comes to the likes of tariffs, which pretty much universally we're expecting to hear about early next year to have them implemented.
Across the sector.
In terms of the analysis, the earnings per share hits will be mid to high single digits.
In terms of.
Themes and stocks to play, you know you own those with the most scale. Walmart also has a history of working quite aggressively with suppliers on managing prices, so we like the prospects of Walmart. The big question and the big opportunity and the big unintended consequence of terroriffs will be passing this cost on to consumers, which may yield inflation, So we'll see.
We think as much as.
Fifteen to ninety percent will need to be passed on to consumers, and it's something to watch.
But you're gonna want to own those with scale and.
Walmart and Costco definitely failed the bill here.
Oliver, I'd love to talk about department stores. I know you're not too excited about Macy's. Are there any department.
Stores you like?
And do you think they're going to have to lean into more sales leading up to Christmas? I mean, open my email this morning and I got burdof Goodman saying extended one more day for the cyber sale. Does Cyber Monday even exist anymore? Is it just cyber Week?
Well, it's definitely the cyber month and T minus forty in terms of the events have started earlier and they're more spread out and people aren't trampling each other anymore.
It's not as exciting as it used to be, so that's happening.
And also lots of markdowns on the markdowns definitely. As we think about department stores, we like Nord from Rack, but what does that mean. It means department stores are changing to be more off price and offer value there and Nord from Rac did a pretty good job. We're hopeful, but the big problem is getting younger customers in stores and store traffic. The other nature of competition is changing rapidly in apparel with Shean and TMU and ultra fast
fashion in the tiktokification of retail. Thinking about social selling, that's something department stores are facing. The future is more exclusive products, so Macy's is upgrading their private brands. That should be a positive for getting younger consumers as well as older consumers back in store.
Ali appreciate your time, sir, OUTIVI Chen there a TD Cowan, Steve England are of standard charted rights. And the following the question is what is core Trump and what is tactical Trump. Core Trump is not wanting to see US prestige and US interests put at risk. Tactical Trump is a threat of tariffs to see what concessions he can obtain. Steve joined us now for more save let's talk about
those threats. Are they credible threats? And do you and to the people that you speak to every single day, believe that he'd follow through on them.
I believe and I think they believe that will follow through on them if he doesn't get satisfaction, you know, in terms of changing policies and getting some visible concessions from from other countries. The question does does he actually want to slap on the tariffs on Canada, Mexico other allies or does he he just does he just want them to adjust their policies and kind of be more friendly towards buying US products. And that's probably the case,
I think, you know, more than protectionism. He's probably doing what you could call a protection racket, which is going to them in advance of his being in power and saying, look, if.
You want to avoid trouble, this is what you've got to do.
And if you you know, if you cooperate, then you know things will be fine.
And I think that that's his preferred direction.
We'll have to see how, you know, how far they are willing to go, and exactly what he does once he gets into into office, and whether you know, he focuses on you know, countries that are large trading partners, or whether he focuses on China more directly because of the national security ISSUECCS.
See how strong is too strong for the dollar given some of the policies that we've heard from President elect Donald Trump. And I say this as we already see some at sports from the US really fall off significantly, and at a time where this has been a president who has waffled a bit when it comes to whether he wants a strong or a week dollar.
Yeah, and I think there's a reason to waffle because on the one hand, you you, dollar dominance is a tremendous privilege and a trevendous advantage and enhances the US's role both financially and politically in the world. You know, everyone talks about service of reaction to the tariff threat. But if I was a US exporter or even a US farmer and seeing the dollar, you know, run up to one o five, you know, it was one o nine against the the euro before you know Trump election
at started going up. And if I was a manufacturer who is depending on exports, I'd say, where, you know, where's my tariff or where's my subsidy? Where's my protection? Because that segment is going to be damaged. So I think that there, you know, everybody, I think there's something to be said for a strong dollar, you know, and often it's a sign, a positive sign that capital is flowing into your country for good reasons. But I think
that that remains to be seen. And just to finish this thought, I think the judgment on the Trump economic policy is not going to be done on the basis of tariffs.
It's going to be done on the basis of.
How successful they are in terms of cutting governments spending and doing the sort of structural and productivity enhancing reforms that the Scott Bessant and the dilg team are promising. Because if they're successful in that, the dollar will be strong. But it won't matter if they're unsuccessful, then that the dollar will be weak and it won't matter.
Can we talk about the other side of the euro dollar tree when it comes to the euro. Now we're facing a French government on the brink of collapse. Germany will have fresh elections at the start of next year. Are you concerned about contagion to the rest of the Eurozone.
Well, you know there's contagion, but the issue is real.
It's not like it's you know, it wouldn't be there if Germany won't have these problems, if if France didn't or the other way around. The issue is that, you know, Europe has had bad luck. You know, they're one of their major trading partners, China. You know, domestic mand consumer demand, demand for luxury goods has really dropped, you know, you know, the tragedy of the war in the Ukraine has really
you know, damaged their growth prospects. Structural policy has gone nowhere, and they're left with the ECB is the only game in town. And that's kind of what the market is looking at and sort of saying, either you're going to compromise on your fiscal goals, you know, with no hope in sight that the budgets will be balanced or you know, be put on a sustainable path, or you're going to
have to depreciate the euro through monetary policy. And that's you know, so depending on which is emphasized, the pressure or either be seen in the rates market or on the Europe.
Hi Steve got to hear from Miss Steve England and there a standard Chanta. This is the Bloomberg Surveillance podcast, bringing you the best in markets, economics, and geopolitics. You can watch the show live on Bloomberg TV weekday mornings from six am to nine am Eastern. Subscribe to the podcast on Apple, Spotify or anywhere else you listen, and as always on the Bloomberg Terminal and the Bloomberg Business app