Surveillance: Rising Rates With Dudley & Lacker

maybe even stretching out to two weeks. The City Group just publishes they believe Mr paulib Be renominated our FED coverage with Michael McKee, and we look forward to advising you with the best guests we can find over the coming days and weeks. We start strong with William Dudley Bloomberg Opinion Columns, of course, the former president of the New York Federal Reserve and UH for years, with Goldman Sachs as well. Bill, you mentioned in your essay on

a FED with some degrees of constraint. I would say a path forward is the Powell in the Brainer path all that much different forward into twenty two, twenty three, and twenty four. I don't think so. I think they're pretty much in the same page in terms of thinking Anthony. Inflation pressures that we're seen now are mostly transitory. Remember, the entire f O MC has supported the current policy path. There's been no dissents for for many many meetings, so

everybody's on board. And also remember the chair can'tons do what the chair wants. They have to bring the rest of the committee along with you. So I think the difference between Paul and Brainer is pretty slight in terms of what Monterrey policy actually is going to turn out to be over the next couple of years. Some of

this is the guestimates of previous inflations. Paul Krugman and Will Folks will talk about this with Jeffrey Lacker here in a bit Bill Dudley Krugman leans to the post World War two forty seven super inflation and then collapse to Eisenhower deflation, where Mr Lacker of Richmond suggests, maybe this is more pernicious like what we saw in the

nineties sixties. Which kind of inflation is this? Well, I don't think we know the answer to that, because we haven't had this kind of recovery from a pandemic before. What we do know, though, is that the inflation pressures are turning out to be higher for longer. We know that that's starting to feed into wages, and we know that that's starting to feed into inflation expectations. So even if the initial impulse turned out to be transitory, you

could still have long lasting consequences. We also know that the Federal Reserve is pretty late here in terms of responding to any of this. They're still adding stimulus, They're still buying treasuries and agency mortgage backed securities, which is pretty remarkable if you just step away from it for a moment and say, would you expect the Fed be adding monetary policy SteamOS at a time that inflation is running over six percent bell A market participant could be

super nimble. I could be nimble with the incoming dates when change my mind. It seems to be a really high bar for federals of participant to change their mind. As you point out, this is way harder than expected it would be. It's stickier, it's broader. But I don't hear them changing their mind. But from your experience, what

does it take to change your view? But I think they're in a type place because the fact is to change their mind, they have to accelerate the taper to get the taper done quicker, because they've made it very clear that they're not going to taper and you're not gonna be buying assets and at the same time being raised raised short term interest rates. So the taper has

to be completed before they actually lift off. And to accelerate the taper would be problematic because you tried to put this out in a very controlled way to avoid a taper tantrum. If you not accelerate the taper, you're gonna get the taper tantrum that you're that you've been trying to avoid for the last six or twelve months. In your mind, Then do you conclude building this is no longer a date independent Federal Reserve given what you just said, well, I think that you know there's a

case to be made for accelerating the taper. I mean, I think if you just look at the economic information that we're seeing flash and higher for longer fleash next dictations becoming unanchored, the labor market very tight. But I think it's very difficult for them to actually do that because that's an admission of a policy error, and it creates the risk of this taper TENDERM so I think

end of the day, I think they'll probably wait. Should they wait, We'll see, Bill, you said basically that they have put themselves between a rock and a hard place. Are you saying that they've already committed a policy error by waiting as long as they have, particularly for ending their bond purchases. Well, I think they have made a mistake in the sense of being so slow to start

the taper. They basically said, we're not going to start the taper until we made substantial progress towards these goals of employment and inflation. And now the taper isn't going to be completed by until June of next year. On the current trajectory, that's a very slow path of removal of accommodation given the economic information that we're seeing. So I think they've by locking themselves in this way. I

think they've doubled down on being late. This is an important distinction when you say that this is the FEDS do wing that they are are between a rock and a hard place, when some people are arguing, even if they were to raise rates, that wouldn't have a material effect on the inflationary inputs, that won't solve supply chain disruptions that won't necessarily heal some of the labor shortages.

Are you basically saying that at this point they are lacking the tools to really curtail inflation in a controlled way, and that they're hoping that it just remedies itself without them having to act. I mean, monitary policy obviously can't solve supply constraints. The only time can solve supply constraints.

But what monterrey policy can do is keep temporary shocks to inflation from becoming more persistent and long lasting by preventing it from getting into inflation expectations and getting into wages. I think the biggest risk for the FED right now is that the labor market may turn out to be tighter sooner than what they anticipated. If that's the case, they're gonna have to make monterrey policy much tighter at

some point. Bill, you've been in the trenches of market economics working with Ed mcclvy, and of course a younger Jan has a golden secs. Have you ever seen such an odd consensus so many not idiosyncratic but original Modeling forward twelve months of the guestimates of market economics, Well, I think that the FETE has been very clear about what their framework is and that been their applied trajectory

for interestry. I think that's unusual to to commit yourself for so long into the future about what you're going to do when, as we see, the economic environment can change very quickly. It's also risking environment that's highly uncertain. It's not like we have a lot of experience in terms of recoveries from pandemics. So I think the FED probably made a mistake by locking themselves to to to into it a pre predicted path of how they were

going to be. Bill. There was one conversation this year that's really stood out for me and I won't forget it. It was sitting down with you and Mohammed, just going into the summer, and you said something that really stunck with Mohammed, and and we talked about it subsequently that if the FETE started to move, they may have to move more quickly to get back to neutral, to do it more quickly. And that was an original thought at

the time going into summer. But I wonder if we can add to that right now because we have this bizarre situation on Wall Street at the moment where we have this conversation about a FED being behind the curve, and then I'll ask someone, Okay, what does the FED do? And they'll say, one high CONQ three, one hiking Q four. Then they'll repeat the move in the year after and we'll have another two interest rate hikes. And it all

sounds very calm, very smooth, and very orderly. Bill, you disagree with that to some extent, Can you just inform our audience, how well, what's very unusual about the market right now is the market expects the peak in short term interest rates for the federal fund rate to be around one in three quarters percent. One in three quarters percent peak in the federal fund rate in this business cycle will be the lowest peak ever going back all

the way to the nineteen fifties. So this idea that somehow the peak in infestrates is going to be extremely low environment where inflation is extremely high just seems completely inconsistent to me. A lot of people will argue, though, Bill, that one of the reasons why is because of all the depth that's been issued, because of all of the

high valuations and stocks that pensions rely on retirees. So basically, the FED will not allow the market to fall because it could torpedo the economy at a time when they have fewer tools to deal with it. Do you buy that argument, Well, of course the Fed doesn't want to cause a premature recession, but they're gonna the tightening of Mantrey policy has to tighten financial conditions. Tighter financial conditions is the mechanism that slows down at the economy, prevents

the economy from continue to overheat. Now, obviously there's risks into doing that. You want to do enough to slow the economy down so you don't have higher and higher inflation, but not so much that you put push the e commy into recession. The risk, of course have gone up. The later you are to tighten Montrey policy, the higher the risk that the tightening ultimately leads to recession. This is crystal ball type stuff, Bill, But what kind of

right path do you imagine? How shallow, how stape incrementally? What kind of moves would you expect. I think they're gonna go, you know, start probably after you know, June or a little bit later, and then they're gonna go faster than what people think and to a higher rate

peak than what people think. Well, I think It's interesting is people have completely forgotten about what happened between two thousand and four and two thousand and six, where the FED tightened seventeen times in a row, each meeting quarter percentage point, taking the federal fund ray from one percent to five and a quarter percent. That seems extreme, but remember inflation wasn't a problem then, uh, and financial conditions

weren't as a cognative as they are today. So you know, that's certainly an alternative type of pass that we could see. I certainly expect the peak to be well above the one and three quarters percent it's currently priced into financial markets. Just not have a three handle bill just to squeeze that question in what kind of thinking about Yeah, probably probably three or four. Yeah, that's what I would You know, obviously it's a crystal ball is cloudy? Was as you

get further out of there we go Fed speak. You can't quite get away from the Fed too much. Tom, that was such a rude question the clinic, the former New York Fed President, thank you very much. Just to get in the mind, Tom, of a policy maker at the moment and a FLM a policy maker just to speak hopingly about what they think compared to where this market is. As we spoke with William Dudley earlier, we now speak with Jeffrey Lacker of Wisconsin, and of course

of tenure at the Richmond Fed. And it is a wonderful sequence of conversation because of the history of the Richmond Fed. No one is is owned economic history like the Richmond Fed. Back the over thrilled to Jeffrey Lacker could join us, uh this morning, Jeff Lacker, we were talking in the comments there of Bill Dudley of Berkeley, and of course of the New York Fed shifting. Dare I say, Jeff to the edge of lacquer, does it surprise you to see moderates or even some doves approach

a more cautious Richmond view. It's certainly striking that a number of people that you would historically think of as on the dovish wig have come around to this. But in a way it's not surprisingly. I think it's because of how far out of bounds of historical pattern the

feds reaction for this inflation surge has been. People forget that the reason we got inflation under control, haimed it and then brought it down to two percent was by reacting with alacrity to inflation, scares little blips in the bond market that signaled the possibility of increased inflation expectations. Instead, this FED seems to be willing to let it run. And Jeffrey, and let's take at Jeffrey right now, to

the immedia debate at hand. And I do this in honor of Thomas Humphrey, of course, and all the history you've done, Paul Krugman has gone back to the history of ninety seven, the post World War two spike down. We came with massive disinflation, Eisenhower deflation, and then there's

a late sixties which was a little bit different. You basically suggests Mr Kruegman maybe off and Mr Lacker maybe on, with a more pernicious inflation of the late sixties discuss Well, I can see why the episode is attractive for those who are sanguine about this surge, But for me, it seems like the nineteen sixties and early set and vis

is the more apt comparison. Inflation is ultimately about fiscal and monetary policy, and at that time period you had two very significant shifts shift in fiscal policy, with President Johnson running a Great Society program, but also running an

escalation in the war in Vietnam that busted budgets. And then on the monetary policy side, you had the gradual and then sudden abandonment of the Breton Woods system, which tied the value of the dollar, however loosely, but in the long run to gold and tied down longer run inflation expectations. In addition, you had the subservience of FED Chairman William mc chesney, Martin and Arthur Burns to prevailing political wins, a subservience that tilted them in the direction

of um reducing unemployment and setting inflation pressures aside. Today now we obviously have a very striking and la change in the fiscal outlook that's appeared over the last couple of years. And on the monetary policy side, the Fed rewrote its framework, it rewrote its philosophy last year, and again it tilted towards greater concern about employment and less of a concern about inflation, more of a willingness to

let it run. Do you agree? Do you agree then that the remedy is going to be a very quick series of rate hikes or perhaps a jump again to what Bill Dudley was talking about where we could get three to four percent up and policy rates or peak policy rates in the cycle. Three to four percent wouldn't

surprise me. Recycle, I think they're on track to a major policy blunder and recovering from that, realizing they've waited too long, it's going to cause them two of necessity, raise rates sharply and try and engineer a cooling of

the labor market, and that very rarely turns out. Well, it's Bill Dudley's pointed this out publicly that UM and others as well, that the FED rarely is able to get the unemployment rate to like go back up a little bit without it going up fairly large amounts very hard to calibrate just how much UM to take out of the system, and UM, it seems to me plausible that we get to three and a half four percent,

and in addition, that we pushed the economy into a recession. Yeah, well, that's exactly where I was going to go with this, Jeff Man. I'm looking right now at the average high yield bond held. The average junk bond HEIL to the United States is currently at four point to three percent. That is all inclusive, you get the overnight rate at three and a half to four percent, What does that do to the valuations of these securities? What kind of

recession are we looking at? And won't the Fed be reluctant to move in that kind of manner because of the torpedoing effect on markets? Yeah, I think they're in a situation where they need to avoid an era. They need to pivot, recalibrate pretty rapidly, accelerate the taper get ready increases started earlier next year in the first half, and they're gonna need some good luck. And I think, um, a lot of markets seem to me priced for a

lot of good luck. Jeff Flecker. I want to take the freshwater heritage here of the wonderful Marvin good Friend and of course his mentor Alan Meltzer at Carnegie mel And Alan Meltzer lectured me like you lectured me. We've got to look all in at the macro data in America as an entirety. Or are we so polarized now that the president's studying inflation has to look at it as two chords, the haves and they have nots. Good question, we typically haven't don't have a lot of data on

UM inflation rates by cohorts UM. I think, more broadly, differential effects of inflation translated into UH, different political implications for the FED, different levels of political system dissatisfaction for the FED. On the employment side, I think UM, the FEDS redefined maximum employment as broad and inclusive. UM. That's all well and good, but it's really hard to measure, and by adding more, essentially more goals, you sort of weaken your attachment to any of them, and it raises

serious questions. I think like the FED has been UM a slave to a deeply flawed and outmoded conception of maximum employment, and I think they missed an opportunity lest way to update that. Jeff one last question, because you're gonna throw me off air. Who was closer to the flawed concept? Governor Brainerd or Chairman Paul. I don't see

much daylight to between them on this. I think that they're both strongly aligned with the House view that the board staff and others in the system promulgate UM views that views maximum employment as this timeless parameter that we get to at the very end of a long expansion if we're not if in the event that we're not hit by any shocks in the meantime, and you have to ask yourself the question, what was maximum employment in the third quarter of two thousand and twenty one, Well,

whatever it was, we surely got there and went beyond. So the modern view that corresponds to the Monar view, which is that, uh, maximum employment in the natural rate, call it what you will, is something that fluctuates substantially over the business cycle, sub fluctuates with a lot of different economic conditions, and the FED needs to take that on board. This is why I love to speaking a former FED presidents because, Jeff, you'd never say this ten

years ago. People speak them openly, I say, I said in the committee, and now it's only a changement. Jeff, thank you. Fund it there, Jeff Laca, former welcome FED president, Thank you very much. Joining us now. Lori Calvacina, head of US equity strategy at RBC Capital Markets. Laurie at the close on Friday forty two year end two, you're at fifty fifty. Walk us through the path to fifty fifty year and twenty two. So thanks John, It's great

to be with you guys. As always, Um, look, we wanted to really refocus the conversation as opposed to just kind of thinking about where we're going to trade over the next six weeks, where we're going to trade over the next twelve months. And so we just went back to our models on basically all of the economic back tests and models point us to about fifty or higher. Our valuation models um several of which are looking at stocks versus bonds, reporting us to a number of about

fifty fifty. And I think what we're really seeing in the data are two things. Is One, even though economic growth is expected to cool off next year and we do have some hurdles to get through frankly on supply chains and inflation, if we're if we're right about where the economy is going to end up next year, if it's about a four percent type number, which is what the economics community is anticipating right now, we should be getting to somewhere around SMP. That would be fair value.

And all of our valuation work. If you look at stocks versus bonds in particular, stocks are still the only game in town, and I think that gets lost in this equity market discussion. At some point in time, Yes, we have extended valuations um. But stocks, at the end of the day are an inflation hedge. And when we look at our models that evaluate stocks versus bonds, we're still seeing a case for eight percent type returns next year. Laura,

just a beautiful brief there. Um. I noticed Lory the string from General Electric to J and J and this morning the idea that Royal Dutch Shell will finally move from the Netherlands back over the United Kingdom. And these are corporations that adapt. They're gonna adapt based on what you just said to seven, eight, even nine nominal g d P if you, you know, forget about the mathiness of it. You extrapolate, the interpolate whatever a phrase from

my childhood. How do you base your call? Is it based simply on non an old g d P. It's we we look at nominal GDP, we look at real GDP um again, we look at stocks relative to bonds. We look at a plain old fashioned pe multiple and make an assessment about next year's earnings. And I'll tell you, Tom, the earnings discussion is fascinating because there was so much

eggs on this last reporting season. But whether or not companies were going to be able to manage through supply chain pressures and inflation pressures, and there was a lot of you know, complaining, and I'm not saying that it's unjustifiable, but if you look at the inflation discussion, it was

pretty negative. We had a lot of companies talking about how, you know, their inflation outlooks had gone up next year, that they were caught off guard by the inflation that they saw perk up in three Q. Supply chain pressures have been real, they have been intense, but at the same time, companies have demonstrated a remarkable ability to structurally suck out costs from their systems. They have been applauding

their supply chain teams, their logistic teams. They've been getting inventories on the shelves, they've been meeting the demand that they can, and they are managing through in a remarkable way. And I'm really hard pressed to understand why that won't continue next year on the strength that we've already seen glory. How much is a question mark here fiscal spending, the idea that we're gonna get a fiscal drag next year, and that could potentially affect how much consumers are willing

to absorb these costs. I mean, I'm struck with the fact that nearly two out of three of the biggest two AS companies actually reported substantially fatter profit margins this year than back in two thousand nineteen. Well, look, I think it's a question on consumers and corporates, and we know that the corporates are passing along price increases, and what we're seeing so far is that there is not any negative feedback on underlying appetite, as I like to

call it. There have been some issues with meeting demand technically here and there, not for everybody but a few, but under underneath the surface, consumers still have the cash to go out and spend, and still have the appetite to go out and spend, even though frankly they've been feeling lousy for the last couple of months. And I think part of that is a testament to the fact that we have this unbelievably strong labor market. We are seeing wage gain increases, so at the end of the day,

the appetite is still there. And you know, I look at some the forecast around the street that are calling for negative numbers next year or severe pullback, and I just simply don't see the case for a growth scare. I don't see the case for the idea that we're going to be flirting with recession, which is typically what really pushes us down into negative territory and equities. Laurie, great to catch up as always, good to see you. To kick off a train in Wlauri Cavasina of OURBC

campital markets. Sometimes things need to be made pretty simple, This from Manamaha Jan. Overall, we continue to believe that the economic cycle in the US remains in the middle innings with above trend GDP growth in twenty one and twenty two. For investors, this means that the bullmarket still likely has room to run. Markets tend not to enter bear markets unless the economy is entering a recession, exactly

the point Lisa was making just moments ago. Joining us now is Manamaha Chan, Senior investment strategist at Edward Jones. Congratulations on the new seat, mon A. Great to catch up with you once again, Thank you, John. Great to be back. Is it that simple? Is it that simple? No recession? This equity market grinds higher. You know, really when you look historically and we when we did the analysis, uh, when we do get worried when we do hit those

twenty type drawdowns or bear markets. We do tend to see an economy that is either in a recession or entering recession, or the FED is close to the end of its tightening cycle. Of course, as we look into twenty two, neither of these conditions are in place, and so yes, we think this bull market has legs still. Uh. That being said, we do think that returns will likely moderate, that we will likely see more normal levels of volatility.

Keep in mind, we are now in the third year of very strong double digit gains in the smp SO in two thousand nineteen we had percent. Last year was close at seventeen. This year we're already at twenty. When you look historically at those figures as well, a fourth year of those type of returns is less likely. But could we get positive returns in line with earnings growth. We think that's fair. And I have the clearest memories of when Wharton invented the dual degree track. You did that,

which is one of the most prestigious academic tracks in America. John, It's very much equivalent to what goes on in the United Kingdom. That track is based on humility. I want you to speak to Edward D. Jones clients. Now they're sprawled across this nation and they're looking at the fancy people booming on both coasts. How do you respond to that? What do you tell the rest of America about the

boom economy of the elite? Yeah. Look, certainly in the United States we continue to see a little bit of this dual track, as you're alluding to, this K shaped recovery, where part of the economy and part of you know, investor basin is doing well and and part of it is is not doing so well. But what we like to tell our clients, you know, at Edward Jones, certainly we have seventeen million plush nearly two trillion dollars in assets. We think generally the course is to remain uh diversified

in your portfolios, stick with equities. You know, there's been a lot of talk on inflation and inflation fears. When you look historically, one of the best asset classes to own in an inflationary environment is equities. And even if you look at this here, yes, c p I is at six point two percent, but as we alluded to, S and P returns close to so you know, it certainly makes sense to to stay that course within equities. Of course, uh, you know, we continue to like here

that value cyclical trade. We think that has legs as well. We're mindful that as we get towards the end of next year, there is some uh you know, the top the comps get tougher for value and maybe easier for growth, but from now value continues to remain attractive. Start to look outside the U S. You know, we talked about

tremendous growth here in the US. Well, there may be some room for catch up in areas of emerging markets, even non US developed markets, as we get hopefully better vaccine and COVID trends longer term, as we get these supply chain issues hopefully easing, and of course hopefully we'll start to see some stability out of China, and we'll we'll hear from Biden and Presidente later today as well. Own A. No one sees truly dark clouds, and that's

what we've been talking about. Recession seems to be off the table, and you do have consumer confidence at the lowest since two thousand and eleven here in the United States. You do have things that are sort of screamed publishests like my twelve year old son asking whether he can buy an unfungible token this morning. I am wondering, from your perspective, whether this gives you concern, Not my son, but the idea that no one sees truly dark clouds.

You know, certainly when you think about black Swan events, and last year could certainly be considered one. Yes, it is hard for economists to sit here and predict what could really derail the market from a really true black Swan event. Um. But generally we do have a good sense of what earnings growth will look like next year.

We do have a good sense of, uh, you know, whether or not we're seeing any big holes in the economy when we look at areas like credit spreads, when we look at areas like even the VIX index, which is a fear index. UM. So when we track these economic metrics, um, and you know, we've we've done of historically and they've provided a really good basis for you know, looking at the future, we're not seeing any huge holes or areas of concern. You know, I think the biggest

ones would be inflation and a FED policy mistake. Uh. And thus far, we're hopeful that inflation does ease from these peak levels. You know, we've talked about supply chain easing. We also think we won't see a repeat of what we saw this year in commodity prices, energy prices um, you know, going up another thirty or forty dollars. We won't see a repeat of auto prices increasing to the magnitude they did this here UM. And so you know, from that perspective, we feel comfortable with the view that

positive earnings growth above trend GDP growth UM. Certainly a consumer that is showing really high appetite for demand and we're seeing that. We'll see how the retail sales figure comes out, but certainly the last couple have been strong, and so to us this is not a demand shock, which would probably be more worrisome than what we're seeing in the marketplace, which is more of a supply shock. MONA great to catch up and roll, Wishing you the best for the year. Head, thank you, thank you, thank

you very much. Money John that of Edwich Giants right now it is an annual visit, but this year highly unusual. Steven Sadof is foundational in retail. His his heritage at Saxforth Avenue and now senior advisor at MasterCard. We're thrilled that he could join us. I've never seen an essay like you wrote for master Card, you and your team,

Steve Sadov of the Bang Up Year. What I love is you go back and do a compare and contrast not pandemic, but with two thousand nineteen, reaching out to the guestimates of this holiday season, and I see retail up twelve percent after auto and guests taken out, and I see what Lisa cares about bubbles, bangles and beads up. Explain that two year arc that we see in retail. Well, good to see you, Tom. And it really is a healthy consumer right now, and it looks like a very

strong Thanksgiving, Black Friday and back and holiday season. If you look at it versus two thousand nineteen, we're seeing some real recovery in the consumer. We're looking at growth in the double digit range, twelve versus pre pandemic levels. Department stores, apparel, luxury accessories, UH all doing extremely well and the consumer is healthy. They're back and what we're

seeing is good margins with the retailers. We're seeing the consumer having a lot of money in their pockets, and this is across the high end as well as the lower end of the consumer. You have lived inflation abouts It's sex Fifth Avenue. They directly affected the every floor of the Great Store. What does this inflation about mean for master Card and the optimism you have about retail buyers. Well, I think right now it's saying that as we get through the rest of this year, we're really on a

very good glide path to a strong consume humor. The holiday forecast was for seven point four percent growth for the overall season. We're looking at Black Friday and the type of range we're looking at Black the Thanksgiving week in the double digit range. So the consumer is healthy. Now we've got pricing, we've got inflation. The retailers are taking pricing and you're seeing it in some of the margins that you're seeing coming out of a lot of the brands and the retailers right now. So it is

an inflationary environment. Hopefully it will start to ease as we go into next year, but the supply chain issues are real and that inflationary number is factored in into the overall of growth rate. How much Steve is this a supply chain disruption issue, the idea of shortages of labor. How much is this company is taking advantage of all of these concerns and then jacking up prices way more than they've been able to for years when they've been

forced to keep them down due to global competition. I don't know whether it's taking advantage or not. We're in an environment where companies are able to get pricing through with their customers, but they're seeing real price increases. I mean, if you look at the transportation cost, you look at the labor input costs, all of these are very dramatic. UH. In many cases, if a brand has pricing power, some

categories you have pricing power, others you don't. Where you have pricing power, I'm seeing them taking pricing at margin, which means that they're getting a flow through and you're seeing it in overall prices and in terms of their growth margins. Steve, when we were talking about former President Trump's policies, we discussed the effect on retail from some

of the tariffs that he implemented across the world. How much are those tariffs still instated and still raising prices for end consumers in a way that perhaps President Biden could alter. Well, the prices through the tariffs still are there, and we do need to see them come down because the consumer is going to feel the feeling the effect of these UH higher prices. So is there an opportunity to take off some of the tariffs. Absolutely over time, But right now the issue is that the consumer is

facing some of these UH price increases. However, they do have money in their pocket. If I look at the month of October, for example, we're looking at six percent type of growth on top of when you had Amazon Prime Day and you had the early promotions year ago. So the consumer spending as we go into next year, it's going to start lapping a little tougher. You had the some of the UH the government payments that started last January, so the environment, especially with the inflation, is

going to get tougher. But as we go through the holiday season, I feel very good that you have good momentum across all these categories. Steve, I want to bring up a board again in radio. Let me describe this board to you, because I think it's just that important. It talks about the explosive two year growth and what we see, particularly our of the Amazon and the rest of the digital space is just a hugely explosive growth of fifty point two percent arcing across two years. Steve,

you're a sex for thevenue guy. What does that mean to you to see that statistic of fifty percent e commerce growth in twenty four months. I think it shows the digitization of America that this is here to stay. That you're seeing the seven percent growth on top of the UH you know, in terms of on top of the going from twelve percent of commerce to eight percent of commerce. Digital is real. The consumer wants an omni channel experience. They want to buy products anywhere, they want

to be able to get them. And the winners are being able to do in store, online, buy online, pickup in store. And that's tom in the luxury sector as well as in the UH entry you know, even the dollar store type of environment. So I think what you have as an environment where the consumer is king, they have all the data and they want to shop conveniently. And uh, you know, those of us in the luxury sector used to think that digital wasn't going to play.

They weren't in a shop online. That's just not true anymore. Look at what Sacks did they're building their Sacks dot com businesses and investing in it, Lisa, And let's Dove tell this in and make some money for MasterCard and Steve, Lisa, now you and I need a road trip to the Sacks Fifth Avenue shoe floor. You go up that elevator where they used to go click click click on the elevator,

and you open out into an extravagance of shoes. Lisa, how far are we from them amazoning that and like taking a firm in there, so any any person could migrate out to a sensible three or four pair shoe acquisition a reasonable All this tells you a lot about Tom King, not about my shoe proclivities. I'll just put that there just to have this up though, Steve. You know what we're talking about. Going to Sacks fifth Avenue

is a high class issue, right. People go there if they want to spend, usually a lot more money than say somebody who shops in some of the other retailers. And I wonder, at to Thoma's point earlier in the show the bifurcated recovery, whether the spending is a bifurcated spending of the halves and bigger ticket items and the have nots still restricting some of their purchases. I'm not

so sure. I agree with Tom on that I think the consumers healthy across the high and clearly the luxury environment. You look at growth versus year ago, or even thirty sevcent growth versus two years ago in some in the luxury sector. Luxury, the high end electronics, jewelry very very strong. But if I look at the dollar stores, I look at the recovery and some of the uh, the t j X is of the world, I think, and even

the strength you see in the targets, uh. The consumer at the lower end had a lot of some of it because of the government's support programs, the labor market being very strong, wages going up, the consumers spending at all levels right now. That's great. Only only Sex could come up with a central Park theme for their shoes floor with MasterCard and of course to gentlemen, always and forever from Sex. Steve Sadof with us this morning. Steve,

thank you. This is the Bloomberg Surveillance Podcast. Thanks for listening. Join us live weekdays from seven to ten a m. Eastern on Bloomberg Radio and on Bloomberg television each day from six to nine am for insight from the best in economics, finance, investment, and international relations. And subscribe to the Surveillance podcast on Apple podcast, SoundCloud, Bloomberg dot com, and of course, on the terminal. I'm Tom Keene, and this is Bloomberg.