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Let's get to Bruce Cassman of JP Morgan. Bruce at least has been quoting you all morning. That quote is the sound that you hear as a narrative cracking. How does this data inform that view?
Well, I think it's pretty supportive of that view on a number of fronts. Obviously, the one that people have been most focused on today is the inflation news, and certainly we got a more distributed outcome of that. Surprise. It wasn't all in the March number, but the March number at point three one seven on an unrounded core is still pretty darn firm. I haven't seen all of the details of how that's distributed. I don't think the super core services were that were that high, at least
what I see. But the basic point here is this is no longer something you can explain as just the beginning of the year pop. But I also emphasized two other things. One is, as you look at the data on income and spending here, we're getting very strong wage numbers, and I think there's probably some pressure here on wage inflation as well as there is the strong income numbers. We'll see the Employment Cost Index report for the first
quarter next week. And then the other thing here is we did have a squeeze on incomes to some degree, both for taxes and higher energy prices in Q one, and consumers held up pretty darn well. And one of the reasons is the savings rate went down. The saving is rerdy is three point two percent in March, and I think that's a message that wealth effects are moving here. So there's both a story here about the economy holding up very well with high interest rates as well as
inflation fresh as being persistent. And while I don't think it's right to talk about this from the point of view of FED tightening, I think the case for FED easing here is pretty is pretty small anytime soon. We'll see what we are six months from now, but certainly the Fed's going to have to change its tune about its view that there's a fair amount of easing that's coming down the road.
I would just add that real personal spending actually increased to zero point five percent from zero point four percent, even though it's expected to fall bruce. Given the fact that we're seeing or hearing that sound of the narrative cracking.
What's the new narrative.
Is it just no rate cuts in your case.
Well, I think the clear part of the new narrative is high for long on rates. The question is where does that take us, And we've been actually struggling with that. We have kind of two scenarios we think are both reasonable. One we've been calling boil the frog, which is high interest rates do weigh on performance. They do start to create vulnerability on balance sheets, particularly the business sector side, and that causes problems for us, not now, but maybe
six or twelve months from now. The second one is we find out that we actually can live with higher interest rates, that we've had better supply side performance, the economy is in an underlying resilient position, and that actually this is a new world and we should understand that
the economy has higher interest rates and is sustainable. Between those two right now, I think there's really support for both in some of the things we're seeing, and we're not trying to take a strong call on what the new narrative is going to be.
You do, though, think that there is going to be a new tone from the Federal Reserve next Wednesday when they give press conference. What do you think is the right way to weigh the risks right now? How much should they shift away from what we saw in December.
Well, I think you have to remember that the May meeting is not a forecast round meeting. The main meeting is not one where we got a lot of new information since the last one. We really get a lot more with two payroll reports to CPI reports up to the June meeting, So I think this is a bit of a wavestation. I think what Powell is going to do is he's going to basically say he's lost a lot of confidence in the views in terms of where inflation is going, but they haven't really shifted those views
in a material way. He's going to downplay what the SEP in March was telling us we still had three cuts for the year, and he's going to look to June for the bigger shift in the FED. And obviously we'll see that in the light of what we get in the next two sets of readings on both CPI and payrolls.
Just got a note some reaction this from Inflation Insight. The title of the note is just core pcee few. I think a lot of people feel that way based on the information we got yesterday. There was a risk a big upside surprise this morning, which is why we're basically saying that inline feels like a downside surprise relative
to where expectations went to that shift. Tirre and yields yesterdayknew heights for twenty twenty four this morning pulling back, particularly on a tenure, by four basis points about four to sixty six this morning. Bruce, I'm thinking, who else is saying few this morning. It's officials in the Ministry of Finance over in Japan. If they're looking at dolly En staying up at one fifty six't eighty seven and approaching one fifty seven, the last thing they needed was
an upside surprise. Bruce, Can we take this global? What are global central banks finance ministries around the world staring down the barrel of this resilient strong dollar. What are they going to do well?
First point to make here, which I think is really important, is we're seeing a world in which growth is broadening its base, and I think it is starting to take some of the weak links, including Japan and Western Europe, into a better position. I think in terms of what central banks are doing, there is more differentiation. We think the European inflation pictures looking a lot better better than the US, so I think there is some room for easing.
As you noted, Minister Finance is probably breathing a sigh of release. I'm not sure they're that happy with the way the BOJ talked to US overnight. They were considerably more dubbish than we expect it in terms of their guidance. But I think the basic message here is you're going to get some easing in Western Europe. I think the BOJ is going to be patient here, but as you say, the end is going to continue to be under downward pressure relative to the dollar. I think the pressure will build.
I think ultimately Japan is going to do more and the economy is going to do better than people expect. And i'd say that more broadly about the global economy, that they'll do less on easing, the BOJ is tightening and we'll get better global growth, and people anticipate at this point.
I know this is a difficult question and everyone has a slightly different answer, and some people say it's not relevant at all, But where are we in this cycle in the economic cycle. If you're talking about a broadening out and affirming of Europe of Japan at a time when a lot of other people are talking about US exceptionalism and the potential for late cycle types of behavior.
So I think we can come back to this tension on high for long, And I think what's embedded in the high for long is an inflation dynamic, even once we've taken out the highs that we had in twenty one and twenty two, and a position in terms of
monetary policy labor markets that screams late cycle. But I think what the pandemic has done is it's both created that dynamic as well as a far more positive dynamic in terms of where the positioning in terms of leverage, durable spending, profit margins, things like that that are normally late cycle signals that type monetary policy is going to do damage. So I think we're in a kind of a weird new world of late cycle inflation in central
banks and early mid cycle private sector behavior. How that plays out, I'm not feeling very confident right now. As I said, I think there's this possibility of the boil the frog and we gradually grind to a problem. But there is a possibility we can sustain this for a while longer while being a.
Few years interesting. Bruce, Thank you, Sir Bruce Cassman. There of JP Morgan