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It's unfair to David Seefe. It's a chief economist for all developed markets at number and we're just to go, what's nominal GDP look like? What is the first derivative of consumption? No, we got to talk to him about he was at Harvard with Governor Myron and today a blistering article by Wonderful Time orlack or like at Bloomberg about our start, Professor Sief, Let's start with what is our start?
Well, good morning, So our star is the real rate?
So not counting inflation that would be neither expansionary or contractionary to the economy.
How many plugins are in your calculation of our start? How many guesses?
How many guesses?
There are a lot of things that would go into it, but there are a couple of things that are by far the most important, please population growth being one of them, and rates of national savings being another.
Very important aspect of it.
There's a huge disagreement on this discuss how you approach it at Nimura. Is our start coming down back to what we remember pre COVID, or do we establish a new ur start at a higher interest rate.
Well, so, I think the biggest thing when it comes to our star has really been a forty to forty five year trend, which has been.
A slow and steady decline.
Great moderation, yes, and that's more than anything else, I would say due to slowing population growth. It's been happening around the world, and the places where the neutral rate is the lowest and has been for decades are places like Japan.
Where the population growth has been the way. So that is a very.
Slow moving force, but one that probably over the course of decades is the single most important one out there. And so I think that what happened after Lehman in the Great Recession was that we, because of the overhang from that, our star really fell below what was the declining trend. And then COVID happened, and it was, for various reasons the opposite. It jumped up to above what was its longer run trend. And now I think we
are certainly heading back towards that longer run trend. Now, what Governor Myron has proposed certainly is controversial in terms of some of the inputs he's put in and therefore the conclusions he's come out with. But I think that it's probably more people than not would agree that it has fallen or is falling in the post COVID era and may continue to fall further.
So what did you cadge that? Well, I was like a lawyer, basically, he knows what he's doing.
So, David, the Fed has cut twenty five basis points, and do you think they're going to proceed? What do you think the cadence is going to be of their kind of rate moves going forward?
Yeah, you know, we have no reason to doubt the dot plot for the rest of the Powell's time in office,
so especially for the rest of this year. So we think that they'll cut in October, and frankly, how could they not given that it looks like they're not going to necessarily have all the data they would December, we also think they will cut again, so it's not necessarily something we think is completely necessary to do, but they've put it out there that that's what they're going to do, despite the fact that they upgraded economic projections, and so
hard to see them being knocked off of that, especially with the probably less data than normal or maybe no data coming out. And then we expect they'll cut once more under Powell in March. Then we think that post Powell there are probably another couple cuts coming, and that's really more of a matter of the next Fed chair, whoever it is, is probably going to be much more dubbish than Powell and at least receive some deference from the rest of the committee.
All Right, it looks like our government may shut down at midnight tonight. As an economist, do you.
Care, well, we certainly, we certainly care for doing our jobs. I mean, this is this is where we is. What we do is we analyze government data. So it's going to be a little bit of a famine at first and then feast as the data eventually come out later and there's catch up.
But in terms of the real.
Economy, probably not so much. There will probably be a small hit to GDP from the lack of work going on in Q three or Q four A Q four I guess, because we're starting Q four tomorrow. But then we would expect there to be almost one for one catch up growth once the government reopened so Q one
Q two of next year. I think that it's particularly important in that the lack of data coming out right as the FED is has tacked dubvishly does make it, as I said, more difficult for the to deviate from that because what would be the justification for doing so. So it may lead to monetary policy outcomes that once we then get the data, we're like, oh, well, maybe they shouldn't have done that. But for the real economy as a whole, it's hard to see this being such a huge deal.
It seems like the consumer out there is in pretty solid shape here. How do you think about the US consumer in seventy percent of this economy.
Yeah, we see the consumer as pretty strong, and we had an.
Upside surprise a couple of weeks ago to retail sales, and generally speaking we've seen over a year of strength in retail sales, and that really we think reflects the fact that although there aren't a lot of hires going on, there really are very very low levels of layoffs.
Going on in the economy.
So the vibe may be one that the economy isn't that great, although even that is starting to change.
But the hard data are pretty clear.
But isn't it k shaped where the vibe is half the nation's flat in our backs, farmers screening for aid from the president, soybeans Brazil, all that we know the drill, any other people are packed in restaurants. Paul goes to that, Lisa and I can't afford.
It's not necessarily an unfair characterization. The key thing, though, is that as long as the people who are currently spending money continue to feel good, they're going to continue to spend money. If people who are new entrants into the labor market are having more trouble than normal finding a job, and there is some of that, that's a real social issue, but it's not necessarily going to hurt the economic data over the short run, and that's what we're seeing.
Data ce for this with the Murrow. We continue the chief economis for developed markets at the Murrow. Stay with us. More from Bloomberg Surveillance coming up after this.
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Monica Garra joins US right Now US Policy Mortgage, seeingly wealth Management. What are the ramifications to someone in Illinois or Arizona of a government shutdown? I get Washington. What's it mean for the rest of the nation.
It means jobs, Like you know, post office for example, could.
You don't get your mail delivered?
It can get delayed, right. It depends on how long this goes. You know, they start to shut down parts of the you know, non essential workers. If you're thinking about your local offices, et cetera, that could have an impact across different you know states.
Well, twelve years ago, sixteen days shutdown. The jobs day was October fourth. It came out October twenty seconds.
So we get it just delayed, I guess.
I mean, so is there what does that mean for markets? What are you telling your clients about a government shutdown? I kind of feel like it's we kind of do this somewhat frequently. It's not that big a deal. What are you telling your clients?
I mean, on average you get markets s five hundred rallying four point four percent during times of government shutdown regardless of life.
Market's rallied during a shutdown.
Rally during through the shutdown, so essentially they see through it. They stay exuberant. But the where you see any sort of pullback or correction, it's around those industries and sectors that have heavy reliance on contracts, right, like defense, like healthcare in certain instances, and we think, especially on defense, right that that could be a nice buy opportunity.
So what are we doing here as it relates to do you care who gets blamed for this? Do we care if it's the Democrats or the Republicans, the Trump administration?
Do we care about that stuff?
We just want the market that I mean, we want the government to kind of do what it has to do and maybe get open at some point.
I mean, do we care? I would say writ large, No, the blame piece is not as critical, right, It's about what actually happens through the cycle, how long it goes. Now, what's important for us politically, though, is to understand those dynamics, right that the Democrats want that ACA subsidy extension, the
GOP is you know, against it. But then there's this additional element that could be thrown in where the White House could come in trying to use this as a catalyst for impoundments or enforcement control, meaning right that they're going to withhold potential funding for certain non ideologically aligned you know, programs and agency act takes.
Let's talk about the job we're gonna Nathan Dean againhos expert on this, But Monica, do you assume it? Morgan Stanley, the president will handle this differently than any other president has ever handled a shutdown. That's that's the heart of the matter, right.
Right, I mean that's where the impoundment piece comes into play.
Right.
We saw him do that with Ukraine funding, so there is a precedent. And so while they're not going to get these mass layoffs, right, we've seen that that's not going to happen.
You could get.
A this essentially this as an excuse or a catalyst to then come in and say, well, you know, we want to go harder on these c energy components. Right at the EPA, we're going to stop funding for that. And if you get that dynamic, that's the sort of stick off ramp that gets the Democrats to the table. The carrot off ramp is do you get those rural state GOP members allowed enough voice to then come together with Democrats to get those ACA subsidy extensions.
I look at President Trump, but I think he's hitting it out of the ballpark every day, it seems like. Yet people tell me these approval ratings aren't very good.
How do you guys square that?
And I think you have to take it. You have to take too These two things separately. Markets are separate. Then social issues and things that might be potentially driving fears with voters, and those two things are very different.
There's percolating a zeitgeist that the fiscal bill that the President spearheaded through will not bring in more Texas. There's a huge assumption text revenue will go up. What does Morgan Stanley say?
And our view we think, I think that if you're looking at earnings, if you're looking at the markets, tax revenues are likely to increase right more in this next pull. That doesn't mean it's going to be for the long run, right And so we think short term we could get some nice tax receipts here towards the end of the year, but then into twenty twenty five, we still do expect a slow down. And that's because you're looking at positive
GDP numbers right nominal six point eight percent. Where do you go from there?
Right?
Twenty seconds? Nobody cares. All we care about is TSA. If there's a government shut down, what happens to TSA?
TSA I believe is going to be deemed essential.
So just just rocks.
You don't have to have to worry about that.
With the Gulf Stream just going out.
No, no, that's true. I just no, I'm not. I'm going to Middletown further out. Okay, yeah, further out it's too congested.
Yep.
Monica Grera, thank you so much, Executive director, head of US Policy at Morgan Stanley Wealth Management. Stay with us. More from Bloomberg Surveillance coming up after this.
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We have in studio. We've spent weeks trying to get her in here. Suki Cooper joins us. What's it like working with Steven Englander at Standard Charter amazing English.
I'm inspired every day. It's fantastic.
Inspire us with a broader commodity trend. Rishue Sherman would say, we're waiting for a super commodity trend. Is it upon us, Suki Cooper?
We still see further highs for the gold markets. We've seen a number of factors driving the market and it's changed. At the start of this year we saw a shift away from central bank flows driving the market to ETFs becoming much more important, and now we've seen the correlation between real yields and gold coming back. The macro environment is increasingly important to ranging from concerns around the US potential shutdown government shutdown, to the scope for FED to
cut rates, further ranging to tariff concerns as well. All of these factors are playing into safe have and demand for gold.
Is there a valuation called ever for gold and other precious metals or is it just people are buying them? They're buying them. I just never know how to value gold, get a sense when it's expensive gold.
I think you need to view it as a commodity and a currency. So when when investor appetite is lacking. That's when the jewelry market, the physical market becomes important. So like the nineteen nineties, that's when the jewelry markets set the floor for gold. And that's what was happening over the last couple of years. It was really that central bank demand that was not just seting the floor
but driving it higher. But now we're seeing it behave as a currency, and that's when these external factors like the dollar become much more important.
Would say to me, hey, stupid, ask her about the Pacific Rim Indonesia freeport. They had a terrible accident there and I did a lot with FCX years ago. Where is Suki Cooper and the given supply of stuff in the commodity space, are we running out of iron ore? Are we running out of gold? Its new supply and Frankie the softs as well.
When we look at the gold markets, the supply has been very easily absorbed. And yes, this Grasburg force majeure has meant that we've seen supply coming offline. We're going to see quite a sharp run.
Force masure is French. If you go to the University of Birmingham, yep, I have no idea what it means continue.
But next year they're looking for a decline in a put around about thirty five percent, so that means around about seventeen tons, and we'll be offline. And yes, it tightens the market, but these are the sort of flows we can see in the ETFs on a daily basis, so the market can absorb such a last but it just tightens our underlying balance.
I mean, we all talk about gold rightfully, so up forty five percent year to date, but spots silver and that's up like sixty sixty percent this year. What's driving that?
Silver to me is a fascinating market given its vast array of and usage. But until this year, silver had been lacking golds at performance, and that was partially because central bank demand was driving gold and silver didn't have that kicker, even though it's deeply undersupplied for the past three years. But this year, because we've seen gold now pivoting to driving FOLLO on those macro factors, silver's now started to ride on its coattails and relatively is underinvested.
So those ETF flows in silver are picking up at even faster pace. And almost three thousand tons.
Tell us about the things off division. I mean with standard Charter bank to look to Australia in iron ore, is the dynamic of iron ore into Shanghai iron ore? Is it normal? The flows to China.
And all iron is not a market that I look at in detail, so I can't take it up. But looking at the gold flows into China, that's something that we can and kind of want to and we see that China's appetite for goals app type for commodities remain strong. Whether we're looking at copper markets.
Copper and people used to like the copper inventories. Do they have like a strategic copper reserve? They have like seven fort knoxes of copper out there.
There's some commodities where we're starting to see a build. We haven't got visible data on how much strategic stockware it might be, but markets like platinum, we've seeing imports far outpacing consumption.
Shukie Cooper with she is with the Standard Charter bank and just definitive and come odities stay with us. More from Bloomberg Surveillance coming up after this.
This is the Bloomberg Surveillance podcast. Listen live each weekday starting at seven am Eastern on Applecarplay and Android otto with the Bloomberg Business app. You can also watch us live every weekday on YouTube and always on the bloom Burg terminal.
To the newspapers, Lisa, what do you have?
Okay, So yesterday we talked about the NFL announcing Bad Bunny the super Bowl halftime performer. Okay, now there's a controversy. The stories are starting to come out. So he's basically, you know Grammy Award winning artist Fresh Office residency in Puerto Rico, And that's kind of what's sparking the backlash a little bit.
He decided on the.
Residency instead of performing in the US because he said he was worried about ice agents using it as an opportunity to scoop up migrants. So that's sparking some online protests from you know, MAGA influencers, conservative social media accounts. And then not only that, but the Wall Street Journal actually has an article too how how Swifties are upset because they thought that she.
Would be performing at the super Bowl. Remember that was the whole thing.
After they got engaged, and all the Swifties are like, yes, She's going to be in the half time, you know, performing at the super Bowl. It's not going to happen, but it's not the first time. Sometimes there's controversy behind some of the performers that they picked, like Kendricks Blomar, Beyonce. There were some controversy Shakira j Lo's halftime performances. There were some controversy.
Shakira killed it. I Kira killed it.
They did all right, but you can't please everyone, I guess. But those are kind of the backlash that's starting to commit.
But he's still set.
I mean, his residency was phenomenal.
Loved it, loved it.
Watch it on Amazon.
A little bias there, like a home bias.
On Puerto Rico.
Yes, okay, this is on the back of yesterday story from Bloomberg News. The Financial Times has a little bit more on the record number of mega deals in the third quarter.
So we kind of talked about this yesterday.
When you had that fifty five billion leverage by out of Electronic Arts. So they crunch the numbers they put together from London Stock Exchange Group, Global mergers acquisitions activity passed one trillion dollars in the third quarter. Fourteen deals valued in excess of ten billion dollars announced globally, and it's kind of like this. It's turnaround from you know, uncertainty over tariff. So things are starting to change, People
starting to do some deals. The biggest one you know remember Union Pacific, that eighty five billion dollar takeover of Northern so Northern, Norfolk Southern. But the big breakups too, like remember Craft Hines carried doctor Pepper.
So it's kind of all this where people kind of thought in President Trump was elected that maybe there'd be more deal activity low, you know, less regulatory scrutiny, more deals happenings. Maybe this is this is what we're getting.
Yeah, because I remember they were they were also you know it put it like a pause on IPO's for a bit, you know, with the Arabs and all that uncertainty.
But things are.
Picking up back. Maybe, yes, I know you love that. Okay, this is some advice from Bill ny the science guy. Okay, who doesn't love Bill Moore the science guy. Okay, how to keep your brain healthy. Okay, here's what you have to do, because this is what he does. He's sixty nine years old. He talked about it. Crossword puzzles. There you go every day, you do you see, you do your No, what's the word did I do it all?
Crossrood puzzles like helpful.
I've been doing it since I was like ten years old.
Are you good?
I've never come plead I'm useless. Every day you get better at it?
Yes, yes you do? Okay, Yeah, Mom's until Friday.
Then I hit him a walk Friday.
Okay.
So he also does like little things to keep his brain, like designing, making model trains, physical activity. Do you know he bikes three times a week and he swing dances. He says that is a big thing that keeps him kind of active and learning new things. You know, that's all about keeping that, you know, the brain in check. But he is busy.
Bill Nida science guy. I love him.
I love that guy.
Very good at Lisa Manteo, thank you so much, us the newspapers.
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