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This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferrow, along with Lisa Bromwitz and Amrie Hordern. Join us each day for insight from the best in markets, economics, and geopolitics from our global headquarters in New York City. We are live on Bloomberg Television weekday mornings from six 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. Here's the take from
evercre Julian Emmanuel is somewhat cautious. Here's the quote from him. Given the uncertainty on policy in the economy and with stocks expensive, three plus steps forward rally is set to yield to two steps back correction. Julian joins us now for more. Julian, good Mornick, good morning. We want to give you some credit. A number of weeks ago, still a lot of pan account there, a lack of confidence, and you said, we've seen the lows recession averted. That
certainly looks like a good call. At least can things change and how quickly?
Well, It's amazing, John, because when you think about it, right, as long term investors, we are supposed to be thinking twelve, twenty four, thirty six months in advance, and in this environment, there is so much news and so much change that you can barely think twelve twenty four or thirty six
hours in advance. And that was really part of the condition that's set up that low on April seventh, you know, just abject panic about the state of the economy, you know, the need to de risk, and from our point.
Of view, we do believe that you are.
Going to end It's obviously a difficult path avert the recession barely, but again, when we think about where the market is right now, there's that high level of uncertainty that makes it, you know, a difficult proposition to commit capital long term.
At least a frank the econom account comes quite well, not just about recession or no recession, and we'll continue that conversation later on. This morning, we've seen growth expectations come down from two to somewhere closer to zero, and I just wonder what your expectations are now phenomenal growth in the year ahead, and what you need to see from these talks between the US and China. What's achievable, what's reasonable?
Well, I think the acknowledgment and I think Secretary Vesson is painting it the correct way, is that this is a process. It's going to take time, it's going to take a number of months.
There will probably be wins.
Announced small ones over the next several weeks. Obviously TikTok is an issue that's coming up again in reasonably short order. But from our point of view, again, just the fact that the process is going in the right direction is a plus. But at the end of the day, and as you said at the top of the show, we
don't know where the landing zone is. And if the landing zone is a global weighted tariff right somewhere of around fifty teen to seventeen percent, that's still extraordinarily high by historical standards, and that brings you to growth.
In our mind, we're looking for point nine for the year.
Is this a tyflation type environment that calls for a stagflation type playbook that we haven't seen for many years.
Well, we would actually say that, and again in true market discounting fashion is that that's already been discounted. So in this stagflation playbook. The market averages annually a ten percent decline, led by sectors like energy and consumer staples, and we've seen in various points of the last few months those themes.
Play out to us. It's actually, again, I.
Go back to what I said a little while ago, to the extent possible and necessary, we want to look through this under the assumption that all sides are incentivized to make sure the global economy stays on course. So we think that now's the time to re engage in the longer term themes of the sectors that we're leading prior to the sell off, and the sectors that we think are going to continued to lead technology centric.
Okay, you say you look through this, but what is this that we're looking through? And I talked, I think about what you just said, which is the market's pricing and a cyflationary like scenario. But they're not necessarily pricing in a federal reserve that responds to stagflation. They are actually pricing in a federal reserve that responds to something more like recession or more like some kind of negative growth shock that maybe isn't in the cards. If we
have a sagflation type of environment. How much is that the ultimate wildcard, whether the that is going to respond to this like some sort of recessionary or recessionary like condition versus stiflation, which is much more difficult.
So look, there's no question about the fact that we will find out we already know this, but we'll find out more that the Fed's hands are in fact tied to with a certain extent, and that obviously goes back to the ratcheting hire of inflation expectations.
But ultimately I.
Go back to Chair Pale's use of the t word transitory a number of weeks ago. I don't think he would have used that without having true conviction whether it's a function of demand moderating Inflation's happened before. Go on, Well,
you try not to repeat the same mistakes. But actually, to us, that's the path forward, And I would say that in fact, as we've seen in other times over the last couple of years, if we take the under on the number of cuts the market is pricing, that will end up being a market positive.
How challenging is it going to be as these talks start, to Jonathan's point first time, around eighteen months we see fits and starts. Sometimes when it comes to these negotiations, how challenging is it going to be to keep your head on and look straight ahead and say, I'm not going to get distracted by all the stop and start and go and potentially some of the rhetoric that will come from this.
Well, that's kind of why we're cautious in the near term, within the context of our view that that April seventh low was the resumption of the structuraball market, that at some point down the road we are going to see new all time highs. But to your point, it's even more of a challenge because we know we're about to get data that's going to scare us over the next number of weeks and months.
What a scary data look like.
You know?
To us, it all goes back to the labor market. So the thing that we focus on the most is the high frequency weekly jobless claims. If that starts nudging towards three hundred thousand, that's when you're going to get sort of gross scare act too. And that's sort of our two steps back process.
Takes us back to the FED last summer. We know what they did. They reduced interest rates by one hundred basis points the moment you've got to freak out in the labor market, just a small one in the summer of last year. That's when it started. They move. Are they constrained this time?
They are constrained. There's no question about it.
And you know even more so because they're certainly going to get political pressure in however many hours that's going to be. But the fact is is that the inflation dynamic is different and at risk of being more anchored than it has been in the past. We don't think ultimately it will be, but.
There is that risk.
The President doesn't like it when other central banks reduce interest rights. And it's interesting that going into this one, it's not the ECP this time around, it's the Chinese, and.
They're doing it pretty aggressively to pave the way for fiscal stimulus. In addition, it's basically everything the US isn't doing, and they're setting the stage potentially to bolster an economy that has been flagging, but also potentially to gurd to sort of set the stage for retaliation potentially to head into these talks.
It's going to say, as always, thanks for dropping by Chilian and Manuel another cult premissra of JP Morgan writing, we are in a giant game of check in between the market, the administration, and the rest of the world. Maybe great deals are just a round the corner, prayer joint is now for more preaking mornic morning. Are they just a rand the corner?
I think that's what the equity markets hoping, not realizing, or maybe hoping that that doesn't happen. That trade deals, even in agreement in principle with all our trading partners, is incredibly hard.
It's going to take a while.
The administration saying this is strategic uncertainty, which tells you remember when we were thinking maybe April second was peak uncertainty, Well, okay, maybe it was peak or not.
That much lower.
This is a plateau of uncertainty that the economy.
It's going to weigh on the economy. It's very nonlinear.
You can handle some time of uncertainty. When that just goes into weeks and months, and you know, Congress is also sort of dealing with the fiscal side. So there's uncertainty on immigration, there's uncertainty on trade.
When all that uncertainty starts to weigh on the economy, I think the equity market's hoping, well.
The deals right here. At least we know they're talking. That's good news.
We weren't sure if that was happening.
But it's going to take a long time even to get that agreement in principle, So we don't know how long it will.
Take, and we don't know the end point.
The end point is not where we were on, you know, at the start of this year.
No question, it's a policy shock. The ACP's decided it's a disinflationary shock that've cut rights. The Chinese have done the same thing overnight. The Federal Reserve when they have to address the same question, what kind of a shock is it for them?
I think Cheval's going to have to master the art of saying nothing today.
You know. So, what kind of shock is a great question.
I think it's a supply shock, which is very hard for monitory policy to address, but the Fed really can't.
Commit to it. It might morph.
I think it will from a supply shock to a demand shock when you get prices going up and the consumer has to pick between dolls or anything else and services.
Do they cut back on services? The US is a service.
Led econy, but look at the data right now. Now, if you take a step back, the hard data is okay. You know, payrolls are strong, Inflation is still above target. So I think the financial conditions have eased in the last month, or at least in the last few weeks. So I think the Fed will say we have no urgency. They've already cut rates, They've taken the preemptive steps. I think people are looking for them to be preemptive. They've already preemptive last year. They've taken rates down. We're at
four and a half. They're going to keep it here until they figured out what's the shock, what's the policy offset. Do we get a big fiscal stimulus deal, in which case they don't need to address the supply shock. So I think for the Fed, it's trying to, you know, I think clarify the reaction function.
That's the most they can do that.
Look, if the economy slows down, we'll respond. We're not there yet. We're watching like everyone else, we're watching everything, and we'll respond appropriate.
The reaction function.
This is really interesting to me because right now we don't have a clear sense of what the reaction function is and what data dependency means in the new world, where data is incredibly backward looking, and this economy depends on people having thirty dollars, is not necessarily two dollars.
And when you start to have that come to fruition, how quickly could you see it manifest in the actual heart data as a demand shock rather than the much more quickly moving supply shock that translates into higher inflation that could come as soon as next.
Week, right, So, I think that's the question we're all grappling with that. You know, we've not seen it in the hard data. How long does it take? I don't think it's that long. I do think it's a little more delayed because we learn from the pandemic, companies learn from the pandemic consumers. I've not done any early shopping, but people have, you know. I think this front loading. You're seeing it in the data, You're seeing it in the trade data. You're seeing it in you know, companies
sort of picking up appiling inventories. So the lag might be a little longer. What I'm watching is what do companies do. Do they pass on that cost? Do prices go up? Do we see it next week in CPI? If prices are going up. That's when consumers have to decide where do they cut back because real incomes are not really growing.
So maybe it.
Shows up in prices first, and then consumers start to pull back on demand. Or do companies say, our margins can afford to take that price increase, and in that case, when margin compression starts to build, do they start to lay off people? So I think we're going to have to watch consumers. We're also watching companies. What do companies do? I think hiring freezers are happening to the layoff start. And so it's the next few months. I don't think
we're waiting till fourth quarter. I think the next few months you'll either see the consumers pulling back or you'll see companies trying to keep some margin and having to cut costs elsewhere. And I guess the interplay of that will show up in the economic data, which the FED will respond to.
It seems like the Chris Waller reaction function is to look through the price increases and look straight to what could potentially happen with the demand shock, What could happen to the labor market. Do you expect to get a better sense of whether that's consensus today at a meeting that francistan Al is going to sleep through.
I don't think we'll get such a cleaner signal from chap Out because we've and I think there's a little bit of path dependency. We just lived through a transitory supply driven pandemic shock becoming a demand shock because we had a lot of fiscal stimulus and it fed through into wages.
And inflation expectations.
So I think what we'll hear from Chepaul is we haven't seen it in the data. We're watching inflation expectations, so you know, which is why I struggled with them being preemptive. But I do think when they see that data, and I think it's a matter of months, they can be very aggressive. The power leg fed doesn't necessarily move in twenty five increments. They started hiking late and then
they went in seventy five increments. I think they're going to start almost by definition, a little late because they're waiting on data that is lagging.
But once they realize it, and I think.
That's where the market's pricing in the market's pricing in a scenario where they don't need to do anything because maybe we get these quick deals, credible quick deals, or the scenario where the economy actually slows down and the FED then aggressively cuts. I think we're pricing in this bimodal distribution, which is why the rate market's pricing in these rate cuts. I think actually the market can price him more if you start to see that hard data.
You said they're going to be like I can think of one person who doesn't like people being like, particularly Chairman Pound. It's the President of the United States. That this afternoon is going to be somewhat interesting.
Absolutely, I think you're going to get a live drip feed on truth social of him, job voting, or potentially we talks to the press. He's going to say chair Pal is wrong and should be cutting interest rates. But that's not going to be new. We've heard this all wong from the President. The one thing that he has come out and said is he does not want to actually get rid of him, even though he has in the past. He's the word termination.
Do you think this comes up in the news conference today or is this yesterday's news.
I'm sure it'll come up, and I'm sure Chefal is prepared to say we're apolitical, We're not even thinking about this because there is an argument which I don't love that because he's getting this pushback to cut that that chepel may not cut.
No.
I think they're looking at their mandate, the mandate. I agree it's backward looking data, but the hard data is not suggesting that they need to cut here. So he's got an easy pass. I think it can get a lot harder if the unemployment rate starts to rise and inflation starts to rise. I think then he's going to have to explain why he's not cutting rates.
But JUX suppose this moment in time to before the election when he cut rates, Why did he do it?
Then?
I think, you know, the labor market was showing signs of weakness. Now I'd like to give the Fed credit that just because the cut rates, the labor market sort of recover.
No.
I think turns out that was a sort of noise in the data. We had those week three week payroll reports.
And FED funds was at five and a half.
So the cut rates to take some of that edge off the economy to move rates lower, they didn't need to do more.
The long and sold off, So I think.
The market pushed back and said no, you actually don't need to cut a lot more. The FED heard it, so I think that I don't think is political. He'll absolutely be asked that. But you know, I think the as long as he's not fired, I think it's a free country.
People can slight barrier, right, as long as he's not five let's build on some of this and unpack it. So on March nineteenth, we close around four twenty four on tens. We're around four to twenty four on tens, despite the fact we had a major policy shop Dan in Washington, DC. You know where this is cat number one question for portfolio managers right now for anybody's cross ass set. Is the long bond going to provide me some comfort if things go wrong with the economy.
I'm not sure about the long bond.
I think the long bond has supply demand for treasuries as much as the economic fundamentals of where FED policy is going to be.
The five year.
Absolutely, we've been adding any backup in interest rates, We've been adding to the five year. Concerns around releveraging, we've been adding to the five year because that's much more levered to essentially fedcuts and that end point. So we don't have to have necessarily a view. Do they start cutting in July or September, what's the end point. I think it's going to be below that three percent. So the five year, I think does provide you that hedge.
You know, I think it's it's a true hedge. The long end, now we're talking about supply demand, is what's the end goal of tariffs. Is it to remove the trade deficit. If it is to remove the trade deficits of the rest of the world, doesn't need to hold as much in treasures. I don't think that's the end goal, but you know, I think the long end has a lot more supply demand. We're also talking about this reconciliation package. It's very hard to get the Medicaid cuts in there.
So if Congress doesn't end up doing the cuts but still manages to do all these tax cuts, you know, beyond the extension, I think that's going to put pressure on the long end. If we have a politicized FED at some point, inflation rist premium skin rise.
So I think there's a lot more going on with the long end. I would stay away from the long end.
We like steepness, but I think that zero to five is still rock solid.
What has changed in the past month or really since the last FED meeting that makes you that much less positive on the long.
End of the YELD curve. April second, But what about it?
So I think the idea you know, and I think you all have talked about it, which I think is a great way to saying, is this a shock to the cycle or the system? And is this like a change in the US lead world order? Trading order, economic DAN? Trade is always a lot of US have been talking about trade. The flip side of trade is that the rest of the world buys US assets, and if we're trying to reduce the trade deficit, it means that the net international capital position of the US is going to change.
If the rest of the world doesn't need.
To own as much in US assets, cost of capital is going to go up. It's not just for companies and consumers, for the US government. And at the same time, what are we getting in terms of the on the fiscal side, If we were getting significant fiscal retrenchment, I would have said, okay, demands less, supply.
Is going to be less too. We're not really seeing that now.
You know, the tax bill is being talked about, So I think April second, I don't view that as necessary, just a negotiating chip, and you know, we'll just get better fair trade deals and we'll go.
Back to where we were the start of this year.
I think the administration's trying, and I think the damage is already being done. The rest of the world now sees the US, not necessarily as a very credible trading partner, and therefore, should capital come back to US. I think we have to do a lot of work to attract that capital back.
When it comes to the tax bill, does the FED need to cut if we get all the sweeteners the President has promised?
Not necessarily, but do we get that?
And I think that's why the FED, and I hope chep Owls asked about that.
That.
How does the tax deal?
It's another form of uncertainty they did see. You know, what resulted in inflation becoming entrenched. I think was part of it was fiscal you know, right after the pandemic.
So if we get significant fyscal stimulus that.
Can offset tariffs, the FED can step back.
I don't think we're going to get that.
And the FED will realize it and and you know, then they'll have to cut more aggressively. But we don't know, and they don't know, and so they're just going to try and say nothing for an.
Hour, which is going to be going to be fun, right, isn't it? Life on Bloomberg saye lights around the staff and it Heythan of Truist is pushing back writing effortens that yes, the term risk reward profile is less favorable following the sharp market rebound. Keith Joint just now for more Keith kipmonic, great to be here. Just want to frame your years so far, just for the audience, because
it's been pretty decent. You downgraded equities something like five days after equity's top down all time highs in the middle of February. You clearly think things have shifted again. The risk reward profile has changed given the aggressive runny we've seen off the loads. Where are you now?
That's why, Well, we are thinking that the risk reward is somewhat less favorable.
At the lows we were down nineteen percent.
We were telling our investors to start thinking about upside risk, not just downside risk. Because at that point you were down nineteen percent, you were pricing in a recession well, largely pricing in a recession at this point. As you snap back, we've kind of really priced in a good scenario going forward. So if I look at it using this way of the evidence approach, we still think the economy continues to slow down somewhat, earning estimates likely have
some downside. At the same time, when you look at the forward multiple for the market, you're round twenty and a half at the peak we were at twenty two. I would argue that given the uncertainty, that we shouldn't be back at twenty two.
And it's not just the terrorists.
Don't forget earlier this year when we were at the highs, we had deep seat come in, so on the margin, tech evaluations should be somewhat lower than they were as well. So putting that all together, it doesn't mean we have to collapse. It doesn't mean we don't have some headlines to keet this market up, but we think the upside is likely capped around fifty eight hundred. On the upside,
maybe you squeeze because sentiment is still relatively negative. That's the biggest asset for the market right now.
This information in the headline, this information and how the market responds to the headline, what do you make of these mosts this morning and response to these scheduled talks this weekend.
You know, as we were talking a little bit earlier, I think a month ago this would have really moved the market much more.
I think, you know, we've moved up a lot.
So some of this is priced in the market is pricing in that we're going to get some terroriff relief. But the question that I think we're all wrestling with is how much STAMMERS has been done. And we still think look at US GDP estimates they would come into the year above two percent there at one point three, one point four, and then globally you're seeing GDP estimates come down for China, for.
Europe, for the UK, so it's not just the US story.
I guess.
The challenge I have is that at at this valuation levels.
Even if forward estimates stay somewhere resilient. You saw that with Disney this morning, you're still trading at a pretty hefty multiple, and we still think there's some downside, trying to keep an open mind what could go right. And the tech side is something where we've seen spending still pretty healthy, so that's a good story, but at this point on a shorter term basis, we just think the risk reward is a little bit less favorable.
Keith President Trump's maximus approach on April second, this Liberation Day, that chart that came out, then continue ratcheting up on China one hundred and forty five percent.
Did he cushion the market to then be.
Able to absorb whatever rate he ends on, whether or not it's ten percent tariff ring in sixty percent on China?
I think so.
I mean, if you think about where we are right now, we're fifteen percent above that low from early April, so we have a long like a big cushion to get back down there as well. So I do think Listen, you come out with the most aggressive stance, you pull it back. But again, the market at this point, when you've come back and where valuations are, I would say that the market is certainly expecting some teriff relief, But are we not going to see some slow down? Businesses
are still are somewhat frozen. And I guess the other thing we've been wrestling with too, is there is a difference between the economy and the stock market, right, I mean, the economy small and middle sized businesses that.
We talk to are more.
Concerned that the bigger companies are able to manage this a somewhat better. And we all know that the S and P five hundred is much more of a growth index with forty percent plus in tech and communication, So there's this also. That's why I also think that low is a pretty good low, because the technology earnings, unlike the oble and market, are still moving higher at this point.
So well, so where are you seeing opportunity then?
If you are sounds like tech companies, Yes, it sounds like Rustle two thousand. No, it sounds like there's a real question though about bonds as an offset about gold. It seems like structurally we have changed the assumptions since April second, for at least some portfolio managers.
Yeah, early in the year, back in February, we did downgrade small caps well less favorable for some of the things I mentioned. They are achieved, maybe a bit over sold from a Sextus standpoint, because those are the back and forth and the whiplast.
What we're trying to.
Do is we have a mixed sector approach, so we have our favorite technology of growth players communication services.
You're seeing there with you know, not only like the Metas and the.
Googles of the world, but also as we saw with Disney and Netflix. So there's some kind of secular growth there our favorite defensive areas utilities, but there's also a secular story there with AI, which we're seeing actually last couple of days. And then on the cyclical side, we were favorable on financials, and our view is like, instead of trying to try to move back and forth each day with these moves, have your favorite area of defensive growth and cyclical as well.
You said the error a ceiling was about fifty eight hundred.
What's your floor?
You know?
Well, I think the floor is likely that low, that forty eight thirty five, and maybe we find support before that, you know, you know, maybe you know, fifty one hundred somewhere in that neighborhood. Again, keep an open mind. I think that floor is good as long as you don't go into recession. Our house views we're around fifty to fifty, which is, you know, that's where we're basically at.
And you did have you know, the VIC spike, and you.
Know the sentiment that you normally seem at bottoms, And the question is do you just v shape right to new all time highs or come back down? And we do think the FED is somewhere constrained.
This is the big issue we've all got as investors right now. Can the promise of deals continue sustaining the secretary market? And there is there a risk that between now and whatever the deal looks like we hit an air pocket in the economic data. And if we do, do we have a good understanding of what is defensive in the secrety market? Can you have a so answer all that?
Yeah, sure, I have all the answers for us today now, and I think that's I think the biggest thing as I'm thinking about again, I always think about it because we're a bit more defensive. What could go right as well? You know, is the market going to look through this as a short term here?
Right?
If we're buying companies, we're really buying them for the next five and ten years and that secular story of AI is still there. So I guess the question is will the market see through some short term pain or at least a reduction in growth that the market is a discounting mechanism. But at the same time, you know, almost have to see it to believe it. So I actually think that will constrain the upside. And so if we come back down and we think that we're past this,
will likely look to baby upgrade stocks again. But we're just not based on the risk reward at this point. By the way, I'm not waiting for clarity. I'm not waiting because it was say, hey, we want clarity. By the time clarity comes to the market has moved. But I'm looking for a better risk reward. And from a nasal allocation standpoint, we're not saying to go like thirty percent cash. We have a little bit more cash, we have a little bit less equities. We still have high quality bonds
which actually have been acting well. We upgraded investment grade bonds on the spread winding recently. We've been bullish gold all year, though I will say short term it's a bit extended as well.
We've seen it aggressive rarely off the low. That's the number one question for me, Lisa. Can we keep this secuity market granted higher? Can it be sustained just by the promise of deals, and can it be sustained by the promise of deals even if you bump into some weak heart data.
A lot of people say that's the ultimate check hard data. When it actually does roll over, that is going to be what ultimately could check this sense that we've seen in the markets. I'm wondering about foreign demand and how much that changes in the meantime, how much there's been a structural shift for dollars nominated assets that coincide with potential hard data.
That does roll over.
Okay, if I finished on that premise, re talked about this earlier on. We keep coming back to this framework. Were seeing a cycle level shock or a system level shock? And if you're still trying to figure that out, do investors abroad behave as if we are seeing a system level shock and begin to diversify away from dollar denominated assets. Is there a risk of that plank out? Do you see signs of it already plank out.
On the margin?
But I don't think there's a wholesale change. I think there was kind of this abrupt change initially. But the way we're thinking about it from a portfolio standpoint, we've been team USA for several years and we still have a slight US tilt. But second according you have more different you know, you have different scenarios happening. You have the currency moving a lot. We're bringing our bets and
we've been doing that since last fall. We added to EM a little bit, we added to investment sorry developed markets this year. I mean, it is notable that on this V shaped recovery, while the US market's still below the highs, you know, Europe's back to all time highs. European financials are all time highs. The other thing that's interesting if you look at the returns you know, Internet are developed about they're up about twelve percent, you know,
almost like nine percent. Is the currency on that side as well? A longer time, longer term though, we still say, you know, are the's big the best companies in the world. They're still in the US, so we have that battle.
But even I guess the.
Bottom line is stay with the US, but bring in those best. And I do think there is some some signal in that the recovery has happened quicker overseas.
It's still exceptional. What did Mark Romans say over Apollo, It's just not hyper exceptional anymore.
It's heading down to just exceptional. And yet, what does just exceptional look like? After so many decades of the US being exceptional when it comes to the currency, when it comes to its funding markets, and then of course when it comes to tech development.
A lot of changed is the Fed last night on March nineteenth, one of the bigger changes in foreign exchange. You wrote dollar was trading at one O nine. This morning one's thirteen sixty one. Keith is good to see you, sir. Thank you. Keith le under that of Truist some pourt study of PGM fixed income has this to say. He's got thoughts. What's started out as a year that could have been easily achieved. Trained growth has now quickly deteriorated. We will be lucky to see growth in the one
percent range. Tom joins us now for more. Tom, good morning, got to see.
You, Good see you all. Has everyone very.
Well, been very busy since we last spoke. A lot of changed since the Fed last met March nineteenth, they put out an SEP, and in their SEP, their forecast for growth of this year for twenty twenty five was one point seven percent, and that was a downgrade from the previous forecast. And we all sat around the table and said, well, look, compare that to where the median dot is. They've downgraded their assessment of growth, and the Median dot is unchanged. They've not increased the outlook for
interest rate cuts. My question to you if they put an SEP out today and what is not due. But if they did and had to downgrade that GDP target one point seven percent down to say one percent, what would the median dot do?
So they would be in good company if they downgraded it a one percent, and yeah, the median died, I think would not move. And I think this really sort of drives home they're sort of where they're leaning, right. I mean, in terms of dual mandate, it's entirely bad
inflation right now. And you know, the irony, of course is I think the administration is sort of, you know, as much as they desperately want the FED to cut raids, I think all that's happening is actually it's just going to sort of, you know, sort of force that day out even further.
So we expect cuts this year, but.
We just don't expect them, you know, immediately. I mean, we don't expect that. I think even July is actually looking a little too early for us, so I think it'd be more backloaded. But I think that there's no question that if you have inflation above target, if you have inflation expectations that are starting the process of becoming unanchored, and if you're now waiting for the inflation thrust from teriffs, I think that this really sort of pushes the FED to the silence.
Can you help us out a little bit?
No one knows anything about anything. These FED officials have actually been going around the country listening to business leaders and talking with people.
The whole FED listens ideas.
Are they gleaning any more information about the stasis in C suites, the idea of what companies are doing and how that could triggle into the economy.
Yeah, I mean, honestly, it's little in the Beige book, right, I mean in the beageook you can hear this.
In the isms, you can hear this. I mean anything that actually.
Has some sort of like you know, sort of qualitative sort of assessment attached to it, we hear it loud and clear, and all of these reports. Now, I think this gets to a really important idea because pal keeps one saying, hey, but you know, the soft data is you know, sort of softening, but the hard data remains firm. Okay, But at some point the soft becomes the hard data, and I think we have to sort of recognize that.
You know, it's funny.
I think the last few years have really done a disservice to this entire conversation because there has been a divergence between the hard and soft data for reasons that are pretty clear, right, I mean, which I'm happy to elaborate on. So I think if you just lop off the last few years and you look at the Harvard soft data, historically speaking, they do move together. So it's I think it's just a question of time now before it sort of translates.
Neil dot has put out there this idea that hard data is getting inflated by the pull forward one hundred percent, and there's this feeling that you really have to look at the soft data, which is a much more accurate reflection now than say, ye're or two years ago. If that's true, why are you less worried about some kind of real pernicious outcome for the economy given how negative the soft data has looked.
Yeah, so, which is why we've taken down our growth expectations, I mean, and not just taking down our growth expectations, but raised our recession probabilities.
It's a coin flip right now.
Whether or not you have a recession, we still expect economic expansion to continue at a much slower pace. But I think you know you are taking that to account, I think in a very meaningful way, recognizing that the downside risk I think is growing seemingly by the day.
Coin flip based on what what's the catalyst, whether or not deals credible deals get done into.
Frystrating the window is closing rapidly.
I think if you don't start to see some real deals, which again seems seemingly they're teeing that up right now, I think that you'll the confidence that's already been wrecked, I think remains that way, and people and companies stay on the sidelines. And I'll say one last thing on this, because I think it's such an important idea that I think everyone's missing.
Let's say you do get credible and.
If you have the threat of tariffs that remain in place even after the deals get done, which I can easily see a scenario like that playing out, then I think that just actually keeps already crumbled confidence pretty pretty suppressed.
This keeps them back to the theory that maybe we've started a process, the process has starts and it becomes self fulfilling. What is on your dashboard beyond just say volume going through the port of Ala, what's next? How did the dominoes fall?
Yeah, I think it gets to exactly this idea that we were just talking about. I think the dominoes have to fall, and I think this is the most critical domino.
It has to be.
Okay, terrorists are done right, like we've got We've achieved what we wanted. Because if you keep the stick of tariffs out there, I think that it's the uncertainty that everyone keeps on talking about will just remain in place.
There's a price for that uncertainty. And right now, that price, Lisa, is wait and see. A lot of companies, to your question, are just sitting there on their hands and saying, got to wait and see.
In the meantime, though they have to raise prices, so they might wait and see when it comes to their investments. They might wait and see when it comes to hiring people. But they have some of them at least have talked about how they can't wait and see when it comes to at least passing along that price increase, which is the reason why you might see that inflation aspect reflective faster than anything else.
And actually, I make one last point, I don't know that's like the queue for you wrapping it up.
So I think, how did you not?
I know your tricks?
So I think, just keep in mind something to this really important idea. If all of a sudden you start to see margin compression, right, profit margin compression, then the labor part of that equation becomes even worse. I mean, look, we're already expecting labor to slow down, and there's already signs that that's happening.
That would make it, I think, meaningfully worse.
I have one more question. Somebody to guy Mida Case says, this is going to be really boring. How could you make this interest in this news conference? What would you ask the chairman?
You know?
So I think that this would be one of these events where I'm guessing Howell would would love it if there was.
No press conference attached to this.
You know, I don't know that there's anything more than he can can say that's new, I think, and in fact, inference to him, I think he's doing the right thing. I think he's basically saying we'll wait and see more to see what happens, and I can live with that narrative.
We know each other too well. Go away some for selling picture. Thank you, sir. This is the Bloomberg Surveillance Podcast, bringing you the best in markets, economics, angio politics. 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.