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This is the Bloomberg Surveillance Podcast. I'm Jonathan Ferrow, along with Lisa Bromwitz and Amerie Hordernt. 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. What a run we've had for the equity market twenty eight, all time highs on the S and P five hundred and the rally just keep on climbing. Rick Worster, the president and CEO of Charles Swap, joins us now to discuss Welcome to the program sir, it's going to see you most of you. Welcome back. Rick, It's always good to see you. What a year has been already for twenty five, still got
three or four months left. Can you frame for us how engage your clients have been over the last year.
Our clients are very much gage so our trading activity this year has generally been about thirty percent higher than last year. So clients are in the market, they're invested. I've been in about fifteen of our retail branches in the last couple of weeks, and I was in Princeton, New Jersey yesterday and I asked the client how they were feeling, and I think they synthesize what our investors
are feeling really well. They said, I'm happy, but I'm nervous, and they're happy because markets are at all time high. Their balances have never been higher, but they're looking at valuations and wondering, you know, am I.
Going to be okay?
So it's a great time because they're looking to us for advice and they're coming in and they're talking to us and they're hearing from our experts. But it's you know, overall, are happy because markets are up.
What do you think the dominant anxiety is at the moment. We've been trying to ask this question. Is it the anxiety to get out? Do you have to do some hand holding or is it the fear of missing out? Are they looking to lean in a little bit more aggressively.
I think our clients are generally engaged and invested so I think it's more I have more wealth now than I anticipated. Markets have done better than I thought. Do I need to be worried about valuations and should I be getting out? I think interestingly, as it relates to the bond market, we're seeing a lot more interest in bonds now because with rates coming down, investors are wondering, do I need to go out the curve. I've been living off my purchase money fund, but the yields on
that are coming down. Do I need to go out the curve and lock in higher yields? So that's been a topic of hot debate among our clients as well.
The sort of elusive money on the sidelines that we talk about that's supposed to rush back into everything else, particularly the long end of the yield curve.
Is that actually happening well?
I think if you look at our clients, the percentage that they keep in either cash or purchase money funds has stayed relatively stable. Now the dollar amount has grown because their wealth has grown so significantly with the market increase in the last couple of years. So from a dollar standpoint, there is a lot of cast sitting on
the sideline. But at the same time, it's roughly the same percentage that they've always kept because they want it for safety needs, or they wanted to they're purchasing a house, whatever it may be. I want's see a big story around cast sitting on the sidelines at the moment.
Do you notice a really big difference in how your clients trade depending on their age, depending on their generation. For example, older individuals tend to go to megacaps, younger individuals just straight bitcoin.
Well, we spend a lot of time talking with our younger investors, and we have thirty five hours a week of live education and training to try to get investors to think about the difference between an equity and a coin and to make sure they're making the right investment decision for them. You know, I do worry about younger investors, and crypto has been something that's done exceptionally well, but I want to make sure we want to make sure that young investors also know about the power of equities
over the long term. And then investing generally is something that you want to do for the long term. Certainly you want to you can trade and take on positions, but you shouldn't expect quick hits all the time. And I think we want to make sure that young investors are aware of that.
But I've read you appreciate in this country the buys to invest, the bus to act, the bus to take a bet. In the UK has so some numbers recently about how much consumers were investing, but how much of it was just going to really really low yield stuff like cash funds, stuff like that. There isn't the same bias to invest in equities and risk that I've seen growing up in the UK that exists here. What do you think that comes from in America? And how do we continue to nurture it?
Well?
I think it's great, and not only has it been great, it's getting even better. If you look at millennials, they're forty percent more likely to be invested by the age of twenty one than gen zers. So it's happening with younger investors as well, and we're trying to engage them where they are. We go to the YouTube TikTok Instagram and we put out videos about the power of compounding and we try to get them interested in investing because if you start young and become an investor, hopefully you'll
stick with it and you'll build wealth. It's the single best way to build wealth in our country is to be an investor, and young people are embracing it far more than prior generations, which is outstanding to see.
It used to be that all those opportunities were in public markets, that you'd get that blockbuster IPO that you'd want to get exposed to. Now a lot of is staying private. How are you thinking about offering opportunities in private markets for customers coming forward from here?
What kind of things are they looking to do. Yeah, it's an interesting question. There's a lot more private companies than there used to be and fewer public companies, and so I do think it makes sense to think about providing direct access to retail investors to private companies, and that's something that we're looking at and thinking about how we participate in. But some of these companies are huge.
You look at the stripes, open Ai, find a Bidio. Yeah, they're billion dollar companies, and so I do think retail investors ought to be able to are to be able to invest in them. And at the same time, there's probably people sitting at that company that would love liquidity for their stock positions. So I think there's a market to be made there.
How much do you think that it's isolated in companies versus real assets?
And I say that at.
A time when we're talking about the reindustrialization of the United States and the idea that there could be actually some move behind it for the.
First time in a long time.
I mean, how much is that part of what you're looking to give access to.
Clients real assets?
Yes, well, I think.
Real assets have been a great way to invest in our country. And the main thing we focus on is differentiating between productive assets and speculative assets, and I think real assets are productive assets, and so it's a great way for a client to get invested.
Are you concerned about You keep talking about the coin and you're concerned about it and actually the productive versus unproductive.
Do you think that that's actually.
A point of concern right now in markets? The amount of involvement in the crypto space.
Well, I think I think crypto could end up being very, very valuable, and there's a role for it to play,
and there's a role for tokenization and the blockchain. What's important to us is that investors, particularly young investors, know what they're investing in and know why it makes sense for them to be invested in it and understand the difference between say an equity in a bond, which have some positive expected return and they're a productive asset, and just understanding the difference between that and a more speculative asset like art or baseball cards or crypto, where you
don't know what the future return is going to be. It's not that we don't judge people's investments, and we can see a world where crypto is very, very valuable, but we want clients to understand the difference between those investments.
Do you think next year's you're going to have more opportunities for either hiring or strategic opportunities because you think policy is clearer now out of Washington.
You know what's driving our hiring is the growth of our business. We're growing at a really strong rate. We're seeing a lot of engagement from clients. Increasingly they want advice from us, they want our help in their financial life, and because of that, that's what's driving our growth. It's not about what's happening with policy.
Can I just finish on the potential for partnership on private markets? I wanted to watch you that is that something you consider a partnership with another firm to offer that kind of access.
I think we would love to see retail investors be able to participate in the growth of private companies in our country.
So I would apollo. I've had the same thing from them. I'm trying to make a market.
And and we we and we have KKR, you know, fir UH firms like KKR on our platform and that our retail investors can invest in. And that's a great way to get access to private markets. They're experts state, they started the market, they've been in forever. That's a very thoughtful way for investors to go be a part of private markets.
Stay with us mulblindex. Savanna's coming up after this as the record stock hits some skepticism following some big AI investment plans. Barbara rehinhat Our Voya Investment Management remains optimistic, writing, we remain overweight equities have been all year. We remain overweight the US. Barbara john is now for more. Barbara gam moniic, good morning. Let's start with that overweight. Let's start with why. What underpins that view?
Well, I think it's all been about earnings, right, So everything that you think about In terms of the equity market, yes, has had a massive bounce off of the bottom, but more than fifty five percent a bit has been driven by earnings, only forty five percent has been driven by multiples. As long as companies are delivering on their earnings, the equity market seems to be poised to continue to go higher.
The early story for a handful of tech names has been absolutely phenomenal. The capex intentions spending plans have been phenomenal as well, and at least was talking about just moments ago. This market keeps rewarding those spending plans. Are we anywhere near the limit of investor tolerance?
Well, I think you have to put it in context.
A lot of people are starting to think about, is this like the late nineteen nineties bubble where we'd spent a lot of money on over investment in fiber, and fiber was being light and there was dark fiber still to go. But you have to remember many of the tech companies that were just propelling the market forward on the Nasdaq in the late nineteen nineties didn't have the earnings power, didn't have the free cash flow power that the companies today have. The AI investment I think is
just starting to scratch the surface. We see it on our teams that we are using AI to help us with repetitive tasks, to help us with quarterly commentaries, to help us with earnings calls. So we're seeing it lift our business in terms of efficiency and in terms of productivities per workers. It may take a while for that to flow through the economic data. We may see the productivity boom five years from now on AI, but we do believe it is indeed coming.
Do you believe it enough to sort of wager on the broadening out trend? The idea that the tech advancements are not going to be isolated to a handful of large companies, but that there is going to be this ground sweit of support for the equal weight.
Lisa, that's a great point, and I think you have to look outside of the US to talk about that. So this entire year, the emerging markets had been lagging behind the US, and even coming off of the April bottom, a lot of global markets had come off the bottom, but the US was leading the way. Just in the past five to six weeks, you've seen this big trend that the emerging markets are starting to outperform the US, but if you look under the hood, it's really emerging
market technology stocks are outpacing US technology stocks. It doesn't mean that they're not all going up together, but emerging markets seem to be taking the lead. I think in order to believe in a broadening out of the market, you need to see the FED continuing to ease. You need to get past this inflation spurt, but you also need to get past this low firing, low hiring phase that the US is in. There is a little bit of nervousness underneath the surface in terms of how long.
This can continue to go.
We think that once you get to the beginning of next year, got the fiscal stimulus boost from the big beautiful bill, you'll have the depreciation right down for companies, So you're going to have a much bigger fiscal stimulus push once you start to get to the first quarter of twenty twenty six.
This might be a difficult question to answer, And this was something I was thinking about yesterday. Is it feasible to see a broadening out in terms of which stocks are doing better and inflation coming down? And I asked this because yesterday and the PMI data showed that actually companies were having a harder time passing along the cost to their consumers. That means shrinking margins, That means less profitability, That means something for investors that's not very positive.
So are these stories kind of in conflict, Lisa.
It's a great question, But I think you have to take a look not only at.
Margins, but the level of margins. Margins are extremely.
High in the US, and yes, companies have not been passing on all the price increases from tariffs, but.
I would say there's always room.
For negotiation for those to continue to go lower, and that would be very well received by the markets. So I think I have to take these things in terms of context. In terms of it's margins come down from twenty seven percent down to twenty five percent.
Is it really that big of a deal. But it's a great question. Barber.
You said you see productivity with AI actually being an enhancement. At the same time you say we're in this low hiring, low firing regime when it comes to labor market. Do you see companies not hiring because specifically AI.
No, I think it's more companies are not hiring because of a lot of uncertainty, right You've had a lot of potential shocks to the economy over the course of this year. You had the tariff induced downturn in April, which was really significant and very severe. I mean, you had very deeply over sold conditions within financial markets. There were a lot of crawls that the world was coming to an end, you know, big rally off of the bottom.
But I think that this low hiring, low firing is just a matter of companies saying we need to get through to the end of the year to get some more visibility on earnings. But companies are holding onto workers. If they're holding onto work workers, you know it's because their sales are in good shape, their earnings in good shape, their profit margins are in good shape. So, as far as we see it, the low hiring is a lot of uncertainty regarding the TIFF's, uncertainty regarding where the FED
finally settles. But in the end of it, we don't see that this is necessarily the beginning of a labor market unwind.
But don't we already have certainty for the most part, the tariff levels are set. We know the direction of travel, We know the direction of travel of FED.
What is so uncertain about this environment right now.
I think that when you're thinking about the tariff levels, there's been a lot of negotiating on them. They were set at very high levels, then they got negotiated down. There's always room when there's negotiations. You've got to think that is their potential that they're going to go lower.
If the US hits much of a soft patch. Let's just say this low hiring, low firing, starts to go into either an inflationary surge or if you get into this environment where you have maybe the low hiring and the firing starts.
To go up.
I think that the FED and I think the administration would likely respond to that. They have a midterm election coming up in twenty twenty six. The clock starts actually this November, and they want an economy that is briskly growing for the midterm elections.
I think it's already started to be fair. I was looking at the PMIS yesterday. Imagery level is not great, new orders not great. I was hoping things would pick up. Don't see many signs of it. The ability to pass through high prices to consumers, but to push back there too.
But consumer spending has been relatively strong speed.
I'm just looking at the PMS yesterday. I think it was a hope that in September things would pick up and reaccelerate. I just haven't seen that yet. I hope that it's backed up by other data points, just don't see it yet.
Well, I think the consumer has been acting like this. They kind of go through these spurts. They spend for back to school, then they kind of go into hibernation, then they spend for the holidays. Right, so the consumer has been looking for a lot of deals for a long time. This has to of course, you know, think through this. You know, this period of where you've got some uncertainty around inflation and higher prices do scare consumers, right, they start to look for better bargains. They go for
you know, off label brands. But I would say once you start to go go through for the holiday shopping, you may have a lull for October and November, but let's start looking at those kind of after Thanksgiving sales.
Stay with us. More Bloomberg surveillance coming up after this stops wrising as Ali Baba becomes the latest tech firm to ramp up AI spending. Peter Chief Academy Writing AI is only the second or third inc maybe even the top of the first. The issue is whether valuations are in the eighth inech pechoin just now for more peak of morning, good morning, good to see it. Let's just
talk about the spending plants. What's your reaction been to the news that's come from Oracle in the last week, from Nvidia in the past few days, from Ali Baba from this morning.
You know, it's all queer. That spending is still going away, you know it's coming in. Reminds me a little bit though too. At some point, remember when you had to have a Chinese plan, and if you had a China plan, you announced your China plan, your stock's fight ten percent. So we're in that sort of moment where everyone who announces plans to spend is rewarded. And if you announce that you're going to spend ten billion, your stock goes up twenty billion. Why wouldn't it you? So I haven't
yet seen that change. I think at some point we're getting closer. People are starting to poke more holes in this. And separately from that, though, I am watching what Bob is doing separately, because when I look at everything that's going on in the world trade tariffs, etc. China has control over the rarest critical minerals. We have control over the AI chips and data. China is trying to work their way, and it's encouraging that they're using in video chips.
But I think that's going to be a real battle line to be drawn.
What I s builed on that. Do you think the US is at a disadvantage.
I think the US has a huge advantage right now in terms of chips. I think China has this big advantage in terms of the processing and refining of rare erst and critical minerals. We're taking some steps, whether it's investments in ticker symbol MP, there's noise about more investments of those sorts, whether it's antimomy lithium. I'm sure there's going to be ensure, you know, enrich new clear, enriched uranium investments. Those are things that we're doing to try
and defeat that. But that's a multi year product. And then at the same time, it felt like China was going to be very easy to work with in terms of dealing with Nvidia. They seem to be setting a line in the sand where they're going to be we want to use Huawei more and more.
So that's what I'm watching most carefully.
There's a lot to impact there. You mentioned that, yes, the Chinese government has been pushing their tech giants to invest in domestic companies and domestic chips, and yet well you just mentioned was Ali Baba. They're using Nvidia supplies and they actually have a new project with robotics that they're also really relying on in Vidia for their supplies. So how feasible is what the Chinese government asking.
For that I don't know, And I think maybe part of it's just a negotiating ploy because again everyone's not figured out maximum levery. So you say these things and then you walk into a room with President Trump and try and get what you can. Having said that, you know, China plays a long game, right, and they were nowhere in AI a few years ago. They are working their way towards that, whether it's a deep seek hype technology, whether it's what the luaweight chips that are going on.
So I would not completely dismiss them, right. They are starting this kind of steamroller effect. They're currently losing, but I think they plan to catch up, and we've got to be very cautious of that. I do think this is a big win for video. I think it's awesome for us, But you know, this is not given. I think if we take it for granted that it's going to keep occurring, that's the risk.
Going back to your initial point, the idea that we're in the eighth inning, even though we're just in the first or second inning. When it comes to the actual production eighth inning of valuation, at what point does it get too far ahead of its skis?
You know?
I think it's when you start seeing these announcements and the stocks don't pop right, when someone announced a twenty billion spend and their stock goes down by thirty forty billion, Then you're like, okay, people are now tired of this. People have kind of sense the valuation. You know, I think one nothing.
Because we had that for a hot second and then that reversed again.
But carry on.
And you know the other strategy that has worked so well is momentum. Right, Momentum tends to work. These have been big drivers of momentum. If momentum starts turning around and you see the CTAs and people get forced out of trades.
But we're nowhere close to that.
Right, every dip gets bought right now, I'm not seeing what's changed that. The one thing that I found both encouraging and may be worrisome for big tech is the Russell two thousands finally up performing. I think, you know, not by much. I think it's up three percent of the past five days. Nasdaq one hundreds up one percent. But that's where I'd like to see the shift is to a broader expansion to more stocks performing well.
Peter, I'm glad you brought the rare earth's issue because Representative Adam Smith was in Beijing yesterday saying I don't think we resolve that is the US potentially willing in these trade negotiations to give up other issues they care about because they are so desperate for these rare earths.
I think we might have to at this point. And again, I think we've got to be really careful. It's not the rarest and critical minerals themselves, it's the process and refined versions. Right, we could go and buy rarest critical minerals on the open market, where are we going to get the process and refined versions. China controls about ninety percent of that, and so I think that is very true. And I always go back now to COVID and I think it was the Whirlpool CEO said, a washing machine
that's ninety nine percent done is not done. And I think that's the problem with these rarest and critical minerals. They may only be a small component of each product, but they are literally critical the pun intended, and that's the issue. So we are going to have to give in until we build out our own industry.
What do you think it is that the Chinese desperately want that we're going to have to be willing to give in.
You know, I think it's probably going to be chips for now.
I think they as much as they say they want their own business, they are going to try and get as many chips in the door they can while they want it.
And I think they're also just buying time.
They're playing this while they try and solidify their trading relationships with other countries. Right while we're trying to sell chips into the Middle East. I'm sure Huawei right now is trying to sell chips in the Middle East. So some of this may be just a delay game by China until they get I think time is on China side. If you're China, because they watched the US, We're very distracted.
We have so many things going on internally that they can just keep the machine moving, and if they can distract us, that's fine by them.
The White House is making a move and pay Materials being the blockbuster one of the last year or so, and then you've got the potential for an equery stank in lithium Americas that cross in the Bloomberg this morning, the team has been reporting on there. How are you thinking about the prospect of increased intervention, an increase between public private partnership going forward from here?
Well, my starting point would be, I think I mentioned in this weekend, it's you may or may not like what's going on, but you certainly have to trade it. So if you're investing in this market, whether we like this intervention, whether we like this ability to play king maker, I'm not sure that that's the right direction. Having said that, you know, in the old days, right, the CHIP sacked, right, it just gave grants, but the grants were tied with
policy strings. So I don't know, Maybe we're better off investing. It's tricky, but I do think right now you're supposed to be scouring the universe for five to ten billion dollar companies are smaller that do things. So I've been involved myself directly enriched uranium.
I think there are other products like that.
They're going to take off because this government needs to jumpstart it. And again, if you go back to what they did with MP it was a relatively small pet investment. I think it's kind of the tip of the iceberg what we might be able to do out of a sovereign wealth fund. But they also help provide one point one billion of loan guarantees, right, and that to me, that's how we spur this growth. So if we go down that path, that's how we have a chance. But it's still a three to eight year process.
This is the challenge pay if you are out of regul know THATCHET you've got a pocketr failings about this and let it go. This administration wants to pick winners. Are you saying that when they pick winners, you want to get along for the rint?
I think so. I think you know. To me, in hindsight, it wasn't surprising at all. And I owned Intel.
I think I talked about owning Intel and not a shock that Trump would maybe ask in Nvidia to get involved because Trump wants Intel to do well. Like Trump likes winners, right, that's all he's ever done. He's going to back winners. He's in a strong position to push these things. So whether you like it or not, I think you have to accept that this is the current administration's view. These things are going to get support, so
you want to look for those. And you've seen so many stocks take off, but I think we're still early stages. And this is all without an official sovereign wealth fund, which I think something that is coming down the pipe for that before the year end.
This is something that David Rubinstein yesterday of Carlisle was talking about that essentially that is the model that we seem to be following with the stakes that we're taking in a number of companies. And it seems like the United States is moving from fiscal dominance sort of the backbone of the US economy, to something that looks more like a sovereign wealth fund, and exactly what that looks
like still remains to be seen. I just wonder how that change is investing, whether that shifts some of the macro investing landscape. And shifts it over into deep value, looking for these specific sectors, looking for exactly strategically what makes sense. It's a very different framework of investing.
Yeah, and you know, one of the things we're trying to do is look at AI and look for companies that have been most impacted by regulation and say, okay, if you've been heavily impacted by regulation, is that an area we can get deregulation. I think finance companies are doing very well right. I think people are looking forward to what can be done on this. And then I
would say this is global too. I know, you know, the UK Prime Minister didn't completely agree with Trump, but I think this whole concept of production for security is global and every country has to be thinking what can you produce at a minimum level. It doesn't have to be fully You need to make sure that you have energy, You need make sure you have a chip industry. Right, England wants to be a data center capital of the world, but they don't produce any energy and electricity.
How are you going to do that?
Not exactly the traditional way of building a suffer and well fund, is it? No, It's justn't typically how you go about doing things well.
Not especially if through a backdoor where people don't understand what the parameters are, exactly what's going to go in, or exactly how big it's going to be, or exactly
how the revenues are going to get distributed afterwards. Look, there's a lot of question marks around this, but fundamentally, from a philosophical perspective, it seems like maybe the limits of fiscal dominance have been reached and people are asking for something else as a tool of national security, and the idea of taking stakes seems to be it, whether you agree with it or not. And I think that that's a really interesting change in the investing landscape.
They haven't outwardly stated they want to do this sovereign wealth fund, but it's obvious everything is about national security MP materials when it comes to Lithium America's when it comes to INTEL. This administration doesn't like grants, they don't like loans. They want outright equity and a company.
Big fund of what.
Yeah, And I would just add that, you know, we're looking at these companies that we need to jumpstart, and people are worried about if everything's just done via executive order, does it get overturned with some new administration. I think these stakes change that it makes it harder to over
turns some of the progress that gets made. So I think that might be kind of the secret Saucier is by investing, owning, giving the American people, this lets people push forward on deregulation and assume it's going to stay further longer than might otherwise.
Stay with us mul Bloomberg surveillance coming up. After this, I turned to Ninth and Sheets Chief Global Economists the City Rights in the following, US firms appear to be absorbing sixty to seventy percent of tariff cost today. However, we doubt that this will prove sustainable as a longer term strategy, and Nathan joined us now for more. And I think, good morning, good morning, good to see you, sir. Which way do you think it breaks if it's not a long term strategy.
Well, I think that the firms have been able to absorb as large a share of the tariffs as they have, largely because they've fullloaded inventories and they're drawing down those inventories. But I think over time they're going to have to pass it to pass it through to consumers and I think we're going to see it in the CPI. To the extent that that doesn't happen, then firms margins are going to be compressed and they're going to be thinking
about how do I cut costs? And then that's bad news for the labor market.
So the question again, wish White, is it breaking which story in or a labor story? Well, a kind of cust.
The FED is casting vote on that one. This is a tough period. The economy is absorbing as stagflationary shock. The Fed's got to choose between its mandates and Jay Pal's telling us, well, it's painful, it's complex, it's difficult, but on balance, they're signaling greater concern about the labor market.
The market agrees with them.
The market agrees is the prudent route to take because essentially people are not pricing in a real reacceleration of inflation.
Do you think that's correct.
I was very concerned about how the long end of the curve was going to respond to signals of FED cuts, and as you say, the long end of the curve has responded very well. As the FED is shifted more in the direction of any easier monetary policy, and of course the equity market is thrilled about an easier FED. So at least so far and very much seems that the markets are with the FED. And they also, at least the preponderance of investors are more worried about the
labor market. One other angle on this that's helpful is in the Fed's view, and I'm persuaded their right. They see at the stamps of policy as still being restrictive, and so what they're doing is not providing outright stimulus, but they're just reducing the constraints on the economy as associated with monetary policy.
As an economist who's task was trying to put together all of these disparate trends and themes, how do you understand the moment we're in.
Is it disinflationary? Is it reinflationary?
I mean, I've heard an argument on all sides, and every time anyone makes an argument, I'm like, yes, you're right, and they're always the opposite sides.
Well, for the United States, I think it's stagflationary, and that's the reality of these tariffs. They're putting upward pressure on prices, they're putting downward pressure on real incomes. And spending in the economy and the FEDS trying to react to that. Now, for the rest of the world, the tariffs have a different implication. For the rest of the world, they are an adverse demand shock, reducing demand for exports,
putting downward pressure on wages and prices. So I would say disinflationary for the rest of the world, stagflationary for the United States.
But in your global Economic outlook you talk about how consumers and companies are actually able to absorb it pretty well.
Do you think that's to is going to change So far?
Absolutely, particularly here in the United States, we've seen we've seen resilience. Now part of that, I do think is a transitionary phase. And specifically what's happened is the tariffs have come on gradually. And as we've seen the tariffs coming on, we say, well, prices are going to be higher tomorrow. What do you do if you think prices are going to be hired tomorrow, you buy more today.
And so the economy has been supported through the first six eight months of the year through a front loading cycle that's now gradually abating. And when you get to the other side, all that stuff that we bought during the first half to get ahead of the tariffs. We won't be buying during the second half of the year, and that's where the payback comes in. We'll see the higher prices and I think at that point we are likely to say I don't think we're going to see recession.
I don't think we're going to see a collapse in the economic activity, but a further slowing in the pace of growth is our ex.
Big take inflation, though, is a concern pushed down the road. Then in twenty twenty six, what does that mean when we have a new FED chair. That is going to be very different than how Jpal views the world.
This is we are learning about how tariffs affect economies in real time, and for me, one of the big surprises has been that the pass through of the tariffs into inflation has just been a lot slower than what I'd expected. The corollary to that is, yeah, we'll probably still be talking about tariff paths through into inflation during the first part of next year, and it may be an issue even in the spring when we get a
new FED chair. Now, there's a lot of issues surrounding where a FED chair appointed by President Trump may ultimately go, but managing the fallout of the tariffs is likely to be one important issue that they're struggling with.
And once you begin to ignore Shaman Pale.
Think he's got is you know, he's got his hands on the steering wheel for how much longer you know, I'm going to argue until he leaves the DEFINI. I think he's still going to be the one who is largely going to be dictating the direction of policy as long as he's a chairman of the FAD And I think part of that is he's got credibility with the other members of the committee, and I think that gives him influence in the capacity to shape policy.
Can he shape markets to the kind at the moment, of course, yes, But once we gets closer to me the reason this, as you know, the policy is not the interest rate. It's what happens in the market. That we all understand that. And at some point later this year, there's going to be someone else who gets to say, you know what I'm next and his views or hers, who knows might carry more way than shaman Pass.
To the extent that policy is influencing the economy today and over the near term, and as you say, the horizon where his policy will be relevant is shortening and will continue to shorten as we approach May. There were left to speculate on what a next FED chair may do, but I think in terms of setting the table and determining where rates are, I think the palsing control until May.
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