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Sure Lucas with us with SMBC Nico Securities. He writ it's a brilliant report with lots of charts. I don't want to go narrow here. I want to go more like sixty thousand feet. Are we through the pandemic? Are we through the shutdown? When we look at price change in America.
I think we're still in the process of normal normalization on the prices angle, shorting.
With the pandemic as well. I still think there's a debris there apps for sure.
And then I think the biggest effect is really psychological, not only on the half of businesses, but also on consumers that are willing to tolerate you know, high inflation.
Well, I mean, because we know that shelter has always been a big part, a big component, right, takes up more percentage I think of that CPI than any other category month over month. I guess it's I guess it's trending lower, But tell that to somebody who's actually trying to buy something or rent something right now, Right.
Well, this is the classic divergence between what economists look at and what people on main street actually care about. So the truth is that shelter inflation is coming down. It's coming down pretty quickly, and it's coming down pretty quickly because home prices lead the CPI's measure of shelter costs by about sixteen months. So the question ultimately we need to answer is where a home price is going and they are weak, and we're expecting that they're going to come down.
National I got everybody Troy telling me this is not a big deal report.
I don't buy it, and particularly with the backdrop with Sherman Paul right now, the fact is I have people like you who are two three four rate cuts.
Going yeh, wait a minute, maybe not.
Are you pulling back the rate reduction scenario that you see because of a set of inflation data.
We're essentially moving back our rate cut expectations. So January, they're likely not going to cut unless this CPS shifting it out correct unless the CPI report is extremely soft, which we're not expecting.
So are you still looking?
I saw on your note unless your note was a little bit old, just my hours because of the way things move so quickly. Are you still looking at three rate cuts?
You're just throw shade on our guests.
I mean, no, but things lighting see this week.
Know, jeez, it's a little shady here this morning.
Huh.
No, No, So we are looking for three rate cuts still. We see the economy slow in, particularly in the labor market, and we also see inflation coming down and that's going to work.
Are shifting to twenty seven? Like JP Morgan?
No?
No, you really think we're going to see it now?
Three rate cuts this year?
Is this way I look at? Is Myron want six rate cuts?
If he gets four, he's a genius because he's so alone on this call.
Are you Are you on the edge of Myron?
No, we're not looking for four, We're looking for three. We think with this new Fed chair coming in, combined with the fact that the regional Fed Bank quotation is comparatively dubbish to last year's Fed Bank quotation, that that might be enough to shift the calculus in terms of three.
Rate Now the ten year inflation just a yield is a wonderful trend based barometer.
It's in a very tight collar, if you will.
It comes in two basis points one point eighty three sixty three percent, a dampening of yields, a bid to Bill's notes and bonds. And as Lisa mentioned, green on the screen here as well.
Troy luck with us.
Who is there's like forty seven lines of David Rosenberg inflation data. You haven't had time to look at him. I'm not looking for that, but is there color here that you can give of pretty much a rote idea, except course CPI a little more damp.
Yeah, A bit surprised here that it's core CPI, which misses expectations here at zero point two percent. Considering the fact that gasoline prices were down nearly five percent on a month over month basis, you would expect that it was headline that would be weak. But the fact that core is actually a bit softer is a profoundly strong signal, at least to us, that inflation is coming down, inflationary pressures are dissipating, and the Fed is going to be cutting this year.
Alexisay asked a brilliant question earlier about tariff dynamics. Let's combine that with the export of Chinese deflation. Is that an untold story for twenty twenty six of a dampening price change in America because of the realities Beijing faces.
One hundred percent.
And it's funny because if you look at the two most tariff sensitive components of CPI, you look at household appliances and you look at apparel the year of a year, rates of change in these prices zero point five percent. We're looking for tariff inflation, really struggling to find it.
I'm looking at this report right now breaking it down. Food up seven tenths of a percent in December, so we're still not getting a break there, right, Americans are still paying more for the basics, and energy increasing three tenths of a percent in December. So again we're finding that there are these areas of sticky inflation and no reason to believe they're going to come down anytime soon.
Troy Well on the energy side of things, what I would add is that that's likely a reflection of electricity prices going higher on the back of higher natural gas prices. Now, it's hard to disentangle how much of this is just a simple commodity effect versus something that is more related to the AI theme. But that is something that we've been worried about for about a year now.
I mean, the reality is there are these little things that people think. You mentioned electricity rates. You know, I'd go to the internet like everybody else and I'm sorry, up eight percent, up ten percent. Elisa just emailed me. We have a whole internal emails system, folks that we took from the US military, and Lisa emails me, this is Tom, what's inflation and door dash, grub up and seamless?
And the answer is ginormous. I mean, how far apart of fancy people like you from the public on inflation.
There is for sure a ca shaped economy, and that applies not only to spending but also in terms of rates of inflation. But this is something that we discussed really in depth in our year ahead outlook, which is that the household net worth of the top one percent is up eighteen percent since the Fed started hiking rates.
For the bottom fifty percent, it's like eight percent. So you're really seeing this divergence of fortunes between we'll say the middle classes and then those at the very tippy top, Troy.
Thank you so much, Troy Ludku with this senior US Economists SMBC that egosecurities stay with us. More from Bloomberg Surveillance coming up after this.
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Holding Court in the United Kingdom for ages. Leslie Venerburry just was fabulous on international relations. Like the Chicago Cubs picked up Alex Bregman from the Red Sox. Yep, the Chicago Council of Global Affairs picked up Vingerburry. That's how from Tottenham or something like, Leslie, how about Chicago.
Arsenal Tom Arsenal always?
How's that winter?
Well?
I know that we were smoking cigars at that fancy hotel in Mcgravia.
You know, Leslie's going Arsenal. I'm going Tottenham. How about those Chicago winters, Leslie Vingerburry, you.
Know miles So far two pretty frigid weekends I happened to be in London and one in New York and the other. But Chicago's fabulous. I mean, talk about a beautiful It looks great when it's on the ground. Tom, the snow is absolutely stunning surrounding Lake Michigan and Millennium Park. I mean, there's there's nothing like it. It's it's really something you should come.
My basic take on our international relations is it's all wonderful until something breaks. How close in our multi front Trump foreign policy, are we just something breaking?
I mean, it's it definitely feels like it's on the edge. The return early in the new year, I think was was boy talk about taking off with speed the you know, the capture of Madura and quickly pivoting to making claims on Greenland, and then you know, Iran of its own accord people on the streets, and Trump contemplating what his options are. It really is extraordinary. And that's even setting aside the domestic story. You know, I think that you know,
it's inter national relations hasn't always been easy. It's been very difficult the last one year. There's so many questions about the United States, But I think nobody could have predicted that this was going to become so much about pre eminence in the Western hemisphere about pushing territorial borders, whether it's through threats or actual use of force taking leaders out. You know, we thought this would be a president who might be neo isolationists, who might be you know,
inclined towards restraint. That is just not what we're seeing right now, with the major exception of you know, China, US policy towards China and Russia exactly where we thought, you know, it might be much tougher at least when it comes to China.
And again, that's not what we've seen.
And Leslie to throw into the mix.
Now we're ratcheting things up against Iran, right with the president now saying he wants to impose twenty five percent tariffs on any country doing business with Iran. What are the the implications there as that country now sees its biggest anti govern a protests and years and killing of many civilians.
Yeah, well, I mean the Iran story is an extraordinary one, devastating for the presumably thousands of people who are at risk or have been targeted by the regime. And I you know, I think President Trump is weighing his options. You're right, those twenty five percent, you know, he's cracking down on secondary violation of sanctions basically, and that hits of course, China and others that he's been you know,
lighter touch with. But relative to the other options that the US could be considering, that is, you know, perhaps a first step. The real question is whether there will be any use of military force, obviously a much harder, more risky lift. I'm skeptical at the moment, but Trump today is meeting to consider his options. It could be that we just continue to see cracking.
Down on you know, these these.
Sanctions, as you've mentioned, is as sort of the and wait and see what happens internally.
Good morning Chicago, Good morning across America, Leslie, Vinjamuri with US year we continue, whether Lesslie, your hallmark is to always bring in academics. You bring in from Minnesota professor Fasal Tanisha Fassal, and just say she has written the absolute best on autocratic states. How autocratic is the United States of America?
Look, the United States of America is not autocratic. We have a leader with autocratic tendency, who likes to play fast and loose with the rule of law, who doesn't really feel like you should be constrained by Congress, the courts, norms.
Standard ways of doing things, convention.
And this is the year of the people, tom this is the year when Americans are you making choices about whether they're going to kind of stand up and hold the line.
And we've just seen a bunch of past.
Leaders of the FED decide that they are going to stand up and and you know, we saw a couple of senators, Republican senators flip over to the other side and and vote for you know, the president to be required to report to Congress if he wishes to do more in Venezuela. So we're seeing a few hints this
year early days that we didn't see last year. And we have you know, it's a long ways out, Silvi, we have the midterms coming, so there are you know, there are some signs that there's going to be a little bit more pushback.
We don't live in an autocracy.
We live in a you know, very dysfunctional democracy, but still a very robust democracy with a leader who you know, by all accounts, wants to make some changes. Some of his instincts are very good, but he doesn't want to do it through the processes that you know, we've come to think are not not necessarily efficient, but that are important.
Right and Trump certainly is unbound and undeterred by precedent. So what happens with little old Greenland in twenty twenty six?
Leslie, You know, I'm I'm kind of concerned on this one that.
I mean a couple of things.
Obviously, Europeans are right rightfully up in arms. They are really talking to each other. They're completely unsettled by the President's willingness to threaten the use of force to argue that he can get it just you know, with money and language. It sort of doesn't matter whether he actually uses force in one sense, which is he's already completely unsettled. The most important norm that has guided the system, at least since nineteen forty five Article to Chapter four of
the UN Charter. You know, you don't use force to unsettle territorial boundaries. It's a sovereignty norm. But here's the rub. If you look at the data, most Greenlanders would prefer to be independent than to be ruled by Denmark. And this is I think where the administration is going to play its hand.
It's going to push that division internally.
It's going to you know, we've already seen there have been trips by the administration meeting with those leaders of the independence movement.
I think that's going to continue.
And you can see a scenario where Greenland is given the opportunity, the voice its preferences and it wishes to have an independence. And as we know, Greenland can't really survive as an independent country. It's fifty seven thousand people. It isn't a part of the world where it needs more security. So I think this one is definitely a live option and want something to watch, and it's going to really rupture relations between the US and Europe.
Less I got twenty seconds. Clubs are White Sox.
You move into Chicago, I mean you're five miles south of wrigley Field. You got the rock Star location on Randolph Street. Do you make the easy slide to Wrigley Field or do you vote for those lowly support those lowly Chicago white Sox.
You know, Tom always follow the Pope. That's all we follow. So the Pope and my daughter and and there you have the app. But I don't choose. I can't choose. I'm independent.
Oh you're very independent.
I can see that Pope merch on the way, and let's say vener Mary, thank you so much. Really has been way too long in Chicago, greatly appreciate.
Let's evenger Mary with us, Stay with us.
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I wanted to get some perspective on this moment for Chairman Powell for the Federal Reserve System, and as we saw with the letter last night led by Leguard and Bailey, central banker around the world, no one is better qualified than Richard Portis. He is at London Business School, but that barely describes his contribution to thinking about global and transatlantic economics, back to his time as a Rhodes scholar long ago and far away to Yale professor. Honored to
have you with us this morning. I mentioned McCabe McChesney Martin in nineteen fifty one.
Is this moment is seismic? Is nineteen fifty one potentially?
Quite? Yes, absolutely, this is a major, major attack not just on a man of unparalleled integrity in his post, but also on the institution, on the FED itself and the independence of the FED is many people would say, oh, you know, let's not express this too much. I mean, maybe if it is two independent, we really ought to three think the mandate and so on and so forth. Yes, yes, it's worth having a reflection on all that. But this
is something quite different. This is where the President of the United States, through his minions, is seeking to take control of monetary policy, and that whatever you think about what Defend has done, what might do in future, pressure that is unacceptable.
The key question for me, Professor port is is, Okay, we're here and based on what we've seen the last X number of years with President Trump, he may get his way, et cetera.
Is it repairable?
Is your study across your exceptional career, is your study that the system and the American system can repair.
Hurt and harm by one person. I think.
That is That's a very very good question because it goes to the heart of what we mean by trust by reputation and how those qualities can be squandered and once reputation and trust are imperiled, are damaged.
They're very, very hard to repair.
So if the President were to have his way, then down the road you would see I think, a real deterioration in the in the way that monetary policy is run in the United States, and that has implications for us over here, for outside of the United States because the effects of FED policy on money markets throughout the world.
Now, Professor I was looking at this unprecedented letter from from the ECB, and I just want to read a portion of it. Here says we stand in full solidarity with the Federal Reserve System and it's Chair Jerome Powell. They go on to say that Powell has served with integrity, focused on his mandate in an unwavering commitment to the
public interest. I wonder if this letter at all, well, do you think it will sway President Trump to pull back a little bit or might not have the opposite effect and have him dig in his heels.
He doesn't care what the foreigners think. That's clear one way or not. It doesn't matter what the topic is. He still doesn't care what the foreigners think. So certainly not on this one. But it may affect views in the United States Senate, for example, which is quite important. It may affect views in the markets in New York and the financial sector in New York, which has been very silent. I don't know whether Jamie Diamond talked about this issue in his early call today, but he should.
And where are these where are these as? They're scared? They're all scared. They're scared that Trump will take revenge against them. That's where we got to.
What's interesting, though, Professor Portas, is we're seeing blowback from within the Republican Party now a number of well, I think it's three in counting now a Republican senator saying we're not going to vote on a new FED share until the legal matter with Powell is settled. Might that have a little more weight than this letter you think from the ECB.
Oh?
Certainly, absolutely, and that that really is a cause for for concern for Trump in terms of nominating a new chair, in terms of trying to get uh, trying to get other seats on the on the board of the FED. There the resistance now is much stronger. That said, you might think if you were a member of the Federal Open Market SWINNY, you might think that you might try revenge against you two if you consist of any vote against.
Richard Porters take at time for one more question.
Lauren Goodwin's here and we got to get to the CPI report, you know, coming up here in twenty minutes, Professor port is as simple as I can is the Trump moment transportable, translatable to a parliamentary system and a prime minister named Farage. Can the reach of Donald Trump reach over to a different form of democracy?
Well, you know, we had a central bank that was not independent at all, that took its marching orders from the UK Treasury up until the Blair government came in nineteen ninety seven, and the first thing that they did was established the independence of the Bank of England in terms of monetary policy, the very first move that the Blair government took, and that has made a remarkable change.
We had an inflationary boom and at the end of the eighties, precisely because the Chancellor of the Excheck of the Finance Minister at that time wanted to have expansion and so we had a very lose monetary policy and guess what, you know, we had this inflationary boom and consequence, we're not nice.
Got to leave it there. Richard porters. Thank you so much, really appreciate it. From London Business School today on the moment at hand for us and across the Atlantic as a Lexusman for a piercing letter from central bankers in the continent of Europe.
Stay with us.
More from Bloomberg Surveillance coming up after this.
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It's the Newspapers with Lisa Mantao.
Okay, I want to start with this one because cases of the flu are surging. In case you haven't noticed anyone here coughing in the studio, the CDC actually says there have been an estimated fifteen million cases of the flu. The numbers starting to decline, but they're still high. But there's a few things that are making things easier for
some people because of COVID. People are more comfortable with taking those at home tests for the flu because to the at home test for COVID, right, so you're kind of used to doing that, and what they're saying it's leading to more timely diagnosis. And what that means is that it's easier to take anti virals like a tamiflu, and that makes people feel better sooner if you take it within those two days of getting sick, and that's the hours.
So if you miss that window, it's tough.
Yeah. So that's the thing, Like people are missing the window. But now since they're used to taking those at home tests are getting vice and I.
See more people are masking up something else we're unfortunately used to because of COVID.
On the train.
Yeah, definitely, I say that a lot.
I got better quickly. I mean, Tucker told me, what.
What miraculous thing did you take?
Because I mostly got horizontal. You're sick as all get out, so you just get horizontal.
Let's move on.
This is depressing, but he is feeling better. There you go.
There's your update. Okay, super Bowl coming up right February eighth, So it was time to talk commercials. It's all about the Super Bowler commercials. I know, I know. Okay, So sources are telling the Wall Street Journal Open AI is set to air another commercial it you know, had its debut kind of last year the Super Bowl for their paid ads, and they're saying, you're going to see a flood of AI companies during the Super Bowl too, because
the competition is heating up. If you want to know how much an AD is going to cost, yes, okay, So ad buyers are telling the journal there are some advertisers paying more than eight million dollars for a thirty second spot, and they're.
Saying it's the ROI on that.
I don't really.
I mean, it is under a lot of eyeballs, but I mean you think that's just for the spot, But then you have the millions, sometimes tens of millions to come with the idea, you know, the whole process of the work to get.
The ad, you know, on top of the.
Eight million, then they have to pay.
So it's it's a pretty big price tag. But that's quite investment, it is.
And a lot of these companies, like tech companies, Anthropic, Google, Microsoft, Open Ai, Perplexity. I mean, they've all spent like three hundred and thirty three million on TV.
Ads in the US in the last year.
So they're putting up the money they want to get, you know, the word out there because some people still concerned about it.
And he's just published in the last hour on Apple and Google. Huge agreement. I think it's been underplayed by the media. I hope to add that for you tomorrow our book solid today.
We're else to you, all right.
This last one was on the terminal stuck out to me because every time I hear the word longevity, my ears like tune up.
I'm always on the longevity gig.
Right, Okay, So this one, Longevity Tourism, raises one point two trillion questions about loneliness. And this was interesting. The author's name on the terminal, it's Alice rob Here. Bloomberg attended a wellness retreat in Sardinia. She saw an ad on Instagram and this is known as like a blue zone. So this is a place where they have traditional lifestyles, healthy populations. So a lot of people go there because it makes them, you know, feel better olive.
Oil, yes, es, yes.
So she found that she made these connections in the group and that she talked to her about the importance of having connections as you get older. And that's where the loneliness kind of episode came in because a lot of people lose friendships and now she says that's the important part of it.
It's a huge business. I'm not even looking at you. I hear what you're saying. But I also think you're never too old to make new friends exactly. And that's what point she's trying to make. She's saying people should.
Get out, and Tom and Michael Barr's.
Share you have to go on a retreat and make your friends.
Thank you, I think over the newspapers.
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