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Joining us our economist of the Year, My economist of the Year Lindsay Piigs Chief Economists is Stafel. Lindsay, is I make this announcement? Do you still believe in a higher rate regime?
I do.
I think it's going to be very difficult for the Fed to continue along this pathway, and I think at this point already reducing the size of rate cuts between September and November. Any further surprises in the data, particularly the inflation data, is likely going to warrant a reduced pace of policy action as well. With the Federal Reserve Chairman Jerome Poul himself unwilling to rule out the potential for a pause or even a rate hike in the coming year. So I think we're on the verge of
a pause now, whether that comes December or January. We're seemingly splitting hairs, but the FED is slowing down with inflation still sticky, in the economy still strong.
Is your terminal rate not a John Williams terminal rate. We don't get back to two point x percent? Does Lindsey Pigs with your higher rate regime have a rate we're getting back to that is new for America.
I think three seventy five by the end of next year is a pause point, a comfortable pause point for the FED. Now, whether or not they give us an additional twenty five to three and a half in twenty six, that still remains a little squishy and will depend on the incoming data.
But in either case, this is noticeably.
Above both a FED and the market's expectation for that longer term, longer term neutral rate of policy.
A pH when you have a PhD from NYU, squishy has a certain thing.
Okay, good for sure, Lindsay, we had some I guess, some decent results out of Walmart, out of Lows. I guess a little bit better than expected maybe, And that kind of ties into some pretty solid retail sales numbers we saw last week. You put all that together, what's that tell you about the consumer here?
Well, we continue to see ongoing resilience in terms of spending activity. As you mentioned, the gain in retail sales was widespread across a number of categories. We saw electronics jumping the most since April, up over two percent, vehicle sales rising the most in three months, gains in eating, drinking,
building materials, you name it. So it was a pretty solid report, again underlining this story that we have this persistently resilient consumer perpetuating solid economic conditions as the backbone
of the US economy. Now, broadly, we're still feeling the weight of higher prices, higher borrowing costs, as well as the near term disruptions from hurricanes, but we see these improvements in income as well as access to other supplemental factors such as credit cards, which continue to provide welcome support to consumer spending. Now, I don't want to oversell
the state of the consumer. We are down from a more robust pace of nearer four percent last year, but at the current trend of two and a half, this remains sufficient to signal ongoing support to broader economic activity. Nearer a three percent GDP pace as we look out to the end of the year and beyond into twenty five.
So with that three percent GDP pace, looking forward. Does the FECT need to really do anything here?
You know, the decision to cut I think even in November begs the question of why. But I think it comes down to given the simple fact that bypassing November just one month after that outsized increase, excuse me, that outsized rate cut in September would have been interpreted as an omission of a policy error.
I think at this point the.
FED is simply responding to the fact that they have little option for additional policy easing, even though it was of lesser twenty five basis points in November, particularly given that they had the cover needed by that recent hurricane weakness and payrolls. But if they were truly data dependent, I don't think they would have moved into November, and I don't think they would move in December.
I mean, Lindsey, this is really critical.
We're up at the Boston FED the other day greeting Susan Collins and Mike McKee, and that one day talking to Susan Collins of Boston and Austin Goulsby of Chicago. How about pegs at one oh one? Are we accommodative or restrictive right now?
Well, to be fair, we still are restrictive, and so changing conditions in the current environment do warrant a less firm policy as we slowly move back towards neutral given that the data continue to normalize.
But again, the.
Sense of urgency that the FED signaled with a fifty basis point cut out of the gate in September sent the wrong signal to the market that this was a FED in a rush to provide support to an ailing economy and move policy back to an accommodative stance. So the messaging I think was extremely inappropriate, and given the strength of the data, I think the FED needs to realize that the pace now needs to be severely reduced in order to set a more neutral tone.
Paul squeeze one more in here with my economist to the Earth. It's like talking to Simon Johnson. Exactly what did they know She's going to Stockholm?
Exactly?
So lindsay here, I mean, I think one of the concerns about President Trump's economic policies that they may be inflationary. How do you is that a big risk for you? When you think about tax cuts and tariffs and so on.
Well, when we look at these in and of themselves, there could be inflationary implications. But that provides us with somewhat of our superficial analysis, or maybe better set an incomplete analysis, as that doesn't account for, particularly on tariff side,
consumer's ability to adjust what they're purchasing. It also doesn't account for the value that we may be instilling by protecting American industries, domestic job creation, preserving the quality and safety of products and services entering the economy.
So it's a broader conversation.
And analysis that needs to be had as opposed to just the top line knee jerk reaction.
Lindsey, thank you so much. Lindsay Piegsa with Stefel.
You're listening to the Bloomberg Surveillance Podcast. Catch us live weekday afternoons from seven to ten am. Easter Listen on Apple car Play and Androud Auto with a Bloomberg Business app, or watch us live on YouTube.
Mark Champion is definitive on Russia and on mister Putin. He joins us this morning of Eastern Front Tension. Mark Champion, just a basic question, is Russia behind mister Putin or is this Putin alone?
Ah? Well, that's a that's a good question. I mean, to the extent it matters Russia is behind Putin. I say that in that way just because you don't have to have the whole country, you know, cheering on the war, wanting to continue the war in order for them to ultimately say, you know, Putin is the Russian state, and he decides what you know is best for the Russian state, and I will therefore, you know, back then. But it
is a complicated question. There isn't sort of you know, natural support for the war, but he has what he needs.
The missile distinction to me of the Lackeyed Martin Ling Temco vote Atticum, is this going at Masie? Is there a nakedness here where Russia feels they simply can't defend against this missile one hundred and fifty one hundred and ninety miles into Russia.
You know, it is a it is a very sophisticated missile. It's a you know, people often talk about it as a long range missile. It's not. It's a tactical missile. It has a range, maximum range of about one hundred and ninety miles. It will have reached that the you know, this first time that it's been used in Russia, it will have reached that because it has to sit behind the lines obviously, which in turn are behind you know, are further into Ukraine. So you know, the Russians will
be somewhat concerned. But I think for a number of reasons, it's a little bit you know, performative. One is that the Ukraine is not going to have a lot of them. The US doesn't have a lot of them. It won't have given very many to Ukraine. The second is that the range is quite limited, although we do talk about it as lot. It's you know, it's longer than a high Mark uses the same launch platform, but it does
have a longer range. Both the Ukrainians now they make their own missiles now, which have a range of fifteen hundred kilometers ballistic missiles. What they lack there is money to produce them, but they are using them. And the Russians, of course, they have a whole range of missiles that
are much more powerful than the attackers. The real question is you know that you know what has put him want to do with this politically, and you know that he has used it as he always does, to you know, make a kind of nuclear threat that we're heading for World War three. Nuclear armageddon all that sort of thing. Nuclear is extremely difficult to use, and that's why he hasn't yet. But you will see him escalate. He is responding.
He has given you know, anti ship missiles to the Hooties, and he has said, you know, I can give stuff to your enemies just as you give stuff to ours. Also, you know, mysteriously to cables under the Baltic Sea connecting you know, Finland and to Lithuania and Sweden to getting that backwards, Sweden to Lithuania and Finland to Germany, both appear to have been cut. This is another area very kind of you know, fruitful potential area for Russia to respond.
Mark. There seems to have been increased rhetoric here, maybe just since the US election of a negotiated piece here with this war here. Is that something that Ukraine wants at this time or do they feel that maybe Russia has much more of the leverage. Even Germany's Chancellor all of Schultz made a phone call recently to that end. Where do we stand about a negotiated piece?
Yeah, no, you're absolutely right. The Ukrainians are very worried that they will be a precipitous piece. Also rather peace talks, and the difficulty there is that at the moment, you know, the Lysia is actually very clear about this. At the moment, the Putin and the Russians have a very little, if any incentive to newgiate, so they have made it clear. And and again, you know, Schultz, I think unwisely made
that call to put In without coordinating with anybody. And the response that he got, according to you know, his own readout of the call was we stand by our goals, and there's you know, I'm not interested in the kind of you know, the solutions that are being talked about, and our goals aren't amount to the surrender of Ukraine.
Mark, how do you respond?
And I'm quoting this loosely, folks, that the president elects as he can fix Ukraine in one day, just as I don't quote me on that, folks.
But just the general tone that you hear.
From the president elect if he fixes Ukraine in one day, who's he speaking to?
Well, he's speaking to his own audience, you know. And that was you know, that quote which has been used a lot. I've used that. That was during the election campaign season, and you know, I'm not too bothered by that.
You know.
Question is which day I go.
I go one minute left, Mark Champion. I've been dying to ask you this, because you'd.
Be the one. Have you seen the new restored Notre Dame in Paris?
I have not. I have not. I've actually been meaning to go over and see it, but I haven't.
We'll get you when you do.
Email my have your people, Mark, email my people when you go see the new Notre Dame.
I would be honored for you.
To give us the first report on this great French restoration. Mark Champion, of course, writing for Bloomberg Opinion, can't say enough about his perspective east of the Eastern Front.
This is the Bloomberg Surveillance Podcast. Listen live each weekday starting at seven am Eastern on applecar Play and Android Auto with the Bloomberg Business app. You can also listen live on Amazon Alexa from our flagship New York station, Just Say Alexa playing Bloomberg eleven thirty.
Joining us our economist of the Year, My Economist of the Year, Lindsay pigs a chief economist is Stifel. Lindsay, is I make this announcement? Do you still believe in a higher rate regime?
I do I think it's going to be very difficult for the FED to continue along this pathway, and I think at this point already reducing the size of rate cuts between September and November. Any further surprises in the data, particularly the inflation data, is likely going to warrant a
reduced pace of policy action as well. With the Federal Reserve Chairman Jerome Poell himself unwilling to rule out the potential for a pause or even a rate hike in the coming year, So I think we're on the verge of a pause now, whether that comes December or January. We're seemingly splitting hairs. But the FED is slowing down, with inflation still sticky, in the economy still strong.
Is your terminal rate not a John Williams terminal rate? We don't get back to two point x percent? Does Lindsey Pigs with your higher rate regime have a rate we're getting back to that is new for America.
I think three seventy five by the end of next year is a pause point, a comfortable pause point for the Fed now, whether or not they give us an additional twenty five to three and a half in twenty six, that still remains a little squishy and will depend on the incoming data, but in either case, this is noticeably above both the FED and the market's expectation for that longer term, longer term neutral rate of policy.
A pH when you have a PhD from NYU, squishy has a certain thing.
Okay, very good, lindsay, we had some I guess, some decent results out of Walmart, out of Lows. I guess a little bit better than expected maybe, And that kind of ties into some pretty solid retail sales numbers we saw last week. You put all that together, what's that tell you about the consumer here?
Well, we continue to see ongoing resilience in terms of spending activity. As you mentioned, the gain in retail sales was widespread across a number of categories. We saw electronics jumping the most since April, up over two percent, vehicle sales rising the most in three months, gains in eating, drinking,
building materials, you name it. So it was a pretty solid report, again underlining this story that we have this persistently resilient consumer perpetuating solid economic conditions as the backbone of the US economy. Now broadly, we're still feeling the weight of higher prices, higher borrowing costs, as well as
the near term disruptions from hurricanes. But we see these improvements in income as well as access to other supplemental factors such as credit cards, which continue to provide welcome support to consumer spending. Now, I don't want to oversell
the state of the consumer. We are down from a more robust pace of nearer four percent last year, but at the current trend of two and a half, this remains sufficient to signal ongoing support to broader economic activity nearer three percent GDP pace as we look out to the end of the year and beyond into twenty five.
So with that three percent GDP pace looking forward, does effected to really do anything here?
You know?
The decision to cut I think, even in November begs the question of why. But I think it comes down to given the simple fact that bypassing November just one month after that outsized increase EXCU be that outsized rate cut in September would have been interpreted as an omission
of a policy error. I think at this point the FED is simply responding to the fact that they have little option for additional policy easing, even though it was of lesser twenty five basis points in November, particularly given that they had the cover needed by that recent hurricane weakness and payrolls. But if they were truly data dependent, I don't think they would have moved into November, and I don't think they would move in December.
I mean, Lindsey, this is really critical.
We're up at the Boston FED the other day greeting Susan Collins and Mike McKee, and that one day talking to Susan Collins of Boston and Austin Goulsby of Chicago. How about pigs at one oh one? Are we accommodative or restrictive right now?
Well, to be fair, we still are restrictive, and so changing conditions in the current environment do warrant a less firm policy as we slowly move back towards neutral given that the data continue to normalize.
But again, the.
Sense of urgency that the FED signaled with a fifty basis point cut out of the gate in September sent the wrong signal to the market that this was a FED in a rush to provide support to an ailing economy and move policy back to an accommodative stance. So the messaging I think was extremely inappropriate, and given the strength of the data, I think the FED needs to realize that the pace now needs to be severely reduced in order to set a more neutral tone.
Paul squeeze one more in here with my economist to the Earth. It's like talking to Simon Johnson. Exactly what did they know She's going to Stockholm?
Exactly?
So lindsay here, I mean, I think one of the concerns about President at Trump's economic policies that they may be inflationary. How do you is that a big risk for you when you think about tax cuts and tariffs and so on.
Well, when we look at these in and of themselves, there could be inflationary implications. But that provides us with somewhat of our superficial analysis, or maybe better set an incomplete analysis, as that doesn't account for, particularly on the tariff side, consumer's ability to adjust what they're purchasing.
It also doesn't account for the.
Value that we may be instilling by protecting American industries, domestic job creation, preserving the quality and safety of products and services entering the economy.
So it's a broader conversation.
And analysis that needs to be had as opposed to just the top line knee jerk reaction.
Lindsey, thank you so much, Lindsay pigs with Stevel.
This is the Bloomberg Surveillance Podcast. Listen live each day starting at seven am Eastern on Ammocarplay and Android Auto with the Bloomberg Business app. You can also watch us live every weekday on YouTube and always on the Bloomberg terminal.
Earl Davis has been on a stool screaming for two years.
It's just not going to get back to a lower rate regime.
Earl Davis joins us this morning had a fixed income and money markets at Demo Asset Management. Earl, do you reconfirm that it will be higher for longer in the yield space?
One hundred percent? And an interesting thing that backs that up. We've overlaid charts of the inflation regime starting in twenty twenty to presently with the inflation regime from the sixties mid sixties till let's call it nineteen eighty, and we are almost on par with the alignment of peak inflation, lower inflation. So it's our expectation that we will test a much higher inflation again, which says yes, higher yields for longer.
How can we get there?
Like Paul Voker ten twelve percent, fourteen percent recession is seventy three, seventy four, which I lived. I mean, Earl Davis, are you talking about that kind of a volatile regime?
Now?
Maybe not that high just because remember the first peak was roughly called it eight nine percent? Can we test that again? It's not a twenty twenty five story, but it's possibly a twenty twenty six, twenty twenty seven story. The reason why is we have zero I won't call it zero, but very low slack in the economy or
excess supply. So when you start bringing in US centric policies that are pro growth and have the potential to increase potential GDP with minimal slack in the economy, that's exactly the kind of tinder that could light up and conse inflation to come again. Remember it's not a twenty twenty five story, but all the elements are there for the next two to five years.
So what does that mean, Earle? For the Federal Reserve, who has you know, cut rates twice, the expectations they will continue cutting several more times. Do you think that might be on hold?
I think it's as Powell said in regards to there's no rush to do it, so I wouldn't say it might be on hold. But in regards to the euphoria and getting back to three percent overnight rates, I think that has been tempered a bit, but I do see slightly lower rates ahead. And the reason why I see that ahead is because the Fed is not implementing policy
for two years. Hence, even though they do say there's an eighteen month flag what they're doing, they're reactive to the data, and the data does show some general slowing, but we're still doing very well.
We had an election and we've got a new administration and a new Congress to be seated. Did that change your economic outlook or just kind of your view of these markets and perhaps how much risk you want to take?
Yeah, you know what it What it does, it reinforces the uncertainty. So let me back up for a bit. You know, the questions you've been asking me in regards to inflation, I'm saying it's twenty twenty five versus not twenty twenty six, and beyond not twenty twenty five. This points to why active management is very important, and it's important because we're going to have volatility, and as an
active manager, there's the ability to monetize this volatility. So coming back to the policy change that's coming about, yes, that does increase the volatility, but this is when you want to go into active management, and we've proven that as was brought up. You know, the past two years have been bang on years for us. You know, last year twenty twenty three, we had a great active management year and this year even better. We expect that environment
to continue for two reasons. One is the pro growth centric policies, but the other reason is the absolute level of yields. Let's call it four to five percent says you get more basis point movement during the day. So it's a very exciting market to be an acidmader mixed income.
Can you be so bold to say it's a total return market?
Are you getting out to Montreal Canadian scissors and clipping the coupon?
It is one hundred percent of total return market, and that's how we always look at it, and that's why we still like credit. Even though valuations and credit spreads are tight. You're all in. Yield is good and we don't see a recession coming definitely not in twenty twenty five, which says, you know what, you could stay and invested in risk assets.
I'm looking at my iend go function, the Bloomberg Index browser and fix income returns are positive for twenty twenty four. What a surprise that is. But US corporate high yield by far the best performer at almost eight percent total return. Here talk to us about high yield.
Yeah, you know what, we like high yield, but the valuations are tight yep. So it's our expectation that we will get volatility between now and January. First, we're going to use that volatility. You're seeing a little negativity in the stock market, which reflects itself in credit spreads as well. We're gonna use that to switch from our ig investment grade corporate exposure to high yel no continual, yeah, yeah, so we're gonna use that to switch to high yield
because you're all in spreads. Look good. We like the fiscal let's say, the economic position of the US, and that is supportive of lower default rates. So we think there's opportunity to do there. But you have to be selective.
Oh, my chart of the year is not equities. It's not this it's not that it's bonds.
Look at the Bloomberg Total Corporate Index. It was negative six standard deviations off trend. You live that crater. We came back two point x standard deviations. Do you visualize somewhere out there. Our listeners are viewers on YouTube. They get back to price up, back to that long term trend.
Yes.
And you know what's interesting about the returns you've seen both in regular fixed income is call it government bonds as well as you're just spoken about investment grade, it's outperformed cash. Everyone says, oh, cash is grade at five percent before the bets started easing. Even now at four and a half to four seventy five, all bond returns have outperformed it. We expect bond returns to continue to
outperform cash going forward. But it's hard for people to see that when you see an inverted yeal curve because they're just saying cash is great, but it's just a coupon. Remember when you invest in bonds, you get that coupon, plus you get capital gains as well too. We think we're in a similar environment where that total return, as
we refer to before, will continue to outperform cash. So we're telling our clients, as you have GICs and long term Investment certificate or shorter term investment certificates maturing, this is the time to both extend duration and to look for credit.
Earl, thank you. What a clinic.
Earl Davis, thank you, thank you so much for Demo asset Management. He's just been dead on about a constructive view on the buymarket app.
This is the Bloomberg Surveillance podcast, available on Apple, Spotify, and anywhere else you get your podcasts. Listen live each weekday, seven to ten am Eastern on Bloomberg dot com, the iHeartRadio app, tune In, and the Bloomberg Business app. You can also watch us live every weekday on YouTube and always on the Bloomberg terminal