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Let's pivot to the US economy right now and gets a perspective there. Wilbert Ross, the former US Commerce secretary under Donald Trump, told Bloomberg where he thinks the US economy is heading.
I think the US is heading toward probably a very mild recessionary period, and that shouldn't be too surprising. It was artificially propped up by all the great situations that had prevailed and all the chaos that was pumped into the economy in the aftermath of COVID. I think they all did that.
Has Wilbur Ross, former US Secretary of Commerce under Donald Trump's first administration. They're talking about a very mild recessionary period. That's his expectation. Let's get another perspective on the US economy and on markets, on deals and much beyond. We're pleased to say we're joined by Ralph Schulstein, Evercore Chairman emeritus and black Rock co founder. Ralph, really nice to see you this morning. Welcome to the studio. Thanks very much for joining us. Let's start with your sort of
in the moment market expectations. There's a lot of people wondering whether we're going to get a cut of twenty five fifty basis points from the Fed next week seems to matter. I wonder if in the ground scheme of things, that's the sort of thing that matters to you because of the signaling it might give to markets. What are you thinking?
I do think it does matter, and if I were in the room, I would actually be pushing for a fifty basis point rather than a twenty five basis point cut. Not because I think the economy is on the verge of recession, but I think the balance of risks has shifted from a risk that inflation doesn't come down as we hope to a risk that unemployment and grows up faster than we would hope, and employment doesn't grow as
fast as we would hope. And as a result, I think the argument for moving toward neutral is a pretty strong one.
Okay, so you're in the fifty camp. Yes, it would that be saying to fifty.
I'm not saying they'll do that. I'm saying that's what I think they should do.
Yes, So if we is there a danger though, that if they did fifty, that that swoops the horses. Would this be taken as risk on or risk off?
Do you think by not right?
I think.
I believe the right thing to do is fifty for two reasons. One, I think the balance of risks are more in the slower employment growth, and second, you know we're quite a ways away from neutral. The risks, even if they are balanced, we should be closer to neutral.
And I think a path which starts at fifty rather than one that goes twenty five and then fifty, actually communicates a more relaxed view about how the economy is doing right now, whereas if you started at twenty five and then in November did fifty, it would actually spook the market a little bit.
Good morning, l So just listenings that you fairly confident that a fifty would not signal that we're in a hard landing.
No, I think you know we're so far.
You know, obviously, when we were at zero, we were a long way from neutral. YEP, at five and a quarter to five and a half, we're also a long way from neutral. And if the risks of slower employment and inflation are roughly balanced, we should be closer to neutral. And to me, the statement should be we now have balanced risks. If anything, we have a little more risk that employment is going to grow too slowly and therefore or we should be getting on with the pop the path getting to neutral.
Just to break it down a little bit, Which bits of the US economy do you think need rate cuts right now?
Is it's the private sect?
I look at company margins, they look fantastic, still really good. Is it? Is it the employment story or is it the governments that needs a right cut right now?
Well, the government benefits from a rate cut, But the parts that I think need a rate cut are the rate sensitive sectors like housing and smaller business where all of their borrowing is tied to short rates, prime lines of credit, et cetera, and so and and by the you know, big business is doing great, margins are high,
top line growth is decent. So I don't think the cases you know in the S and P five hundred or the Dow Jones, the cases in the part of the economy that actually generates the vast majority of new jobs.
How much of that strength, though, is that the whim of what might happen in the political space in the next six months. I'm curious if we're talking about these interest rate cuts in this resilience. How much should the FED be thinking about the continuity or the potential increase of tariffs in the.
Next six months. Well, the FED would always say that they.
React to the economy, not to fiscal policy or to trade policy, and I think that's basically true. I think we are We're in a period right now of significant economic uncertainty. We're in this transition period from when inflation was too high and it's now coming down.
It hasn't quite reached the Fed's target.
Yet, but it's certainly moving in that direction, and unemployment is drifting upward, and you know, as you just heard from the former Commerce secretary, there certainly is you know, some risk that we will have not a soft landing but a mild recession. All of that means there's uncertainty. The political period adds additional uncertainty, and so that's kind of a chilling effect on significant moves by business.
Well, Well, famously, in twenty nineteen, j. Powell basically announced an insurance cut to address the pain from tariffs. Which is why I'm wondering if that playbook sees a little bit of a repeat, and if terroriffs are even something the market, the economy has gotten used to or maybe is the budget perhaps the bigger worry.
Well, I think the I think you have to separate what I would call trade balancing or tactical or targeted tariffs and blanket tariffs. Blanket tariffs I think presage and high tariffs presage a period of declining.
Free trade, which we've already entered.
Somewhat, and that is inflationary and very bad for markets. So if that happened, I think we would we'd certainly see an effect in the markets. The impact in the economy would be, you know, always uncertain.
Well, we're already seeing you mentioned the difference in blank tariffs and target tarifs, already seeing that kind of a continuation of not just the Trump era, but even in the Bien era, a continuation of tariffs not just on China but on Europe as well. At what point is that so damaging to the economy.
Well, the magnitude of them has not been that great so far, and I think as a general matter, the Biden administration has tried to balance you know, what they would call fair read and you know, a reasonable relationship with Europe and our allies in Asia, and not a.
Whole scale attack on free trade.
You know, being the special trade representative in the Biden administration has probably not been the most exciting job over the last four years.
Yeah yeah, maybe let's talk about areas of the market that might be exciting and talk about deals, because that's something I'm sure your views on. We just see another example this morning, digital Bridge sets away the sale of a four billion dollar firm, edge Point, just another example of maybe some deals going through. We heard from Berkleay's this week, Goldwyn Sachs this week, both saying things are nothing to pick up on the deal's front, wishful thinking or actually seeing evidence of that.
Well, there's definitely a some pickup in the nowt activity.
If you look at the first.
Eight months or so of this year, the dollar volume of announced transactions is up. Interestingly enough, the number of transactions is still down this year. There's you know, if I look at Evercor's business, we track a number of indicators. The least forward looking is our backlog, which is you know, tangible. The other measurable ones are new engagement letters signed earlier than that is, new conflicts clearance. When a client calls us up and says, hey, we're thinking of this will
you help us? And even earlier than that, which is not quantifiable is active dialogue with our clients. The active dialogue with clients is way up, new engagement letters is up, and conflicts clearances are up somewhere in between those two. So there's definitely a significant amount of pent up activity. As we talked earlier, we're in a period of economic uncertainty. Economic uncertainty is the enemy of announced activity, So it's going to happen. It's a question of when it really starts.
Do you think the Harris camp is generating economic uncertaincy? We don't know yet what the Horras camp is going to deliver in terms of its economic agenda. We seem to be light on detail.
What is your sense of that?
Well, I'm not sure if I had a scale here, and I watched the debate on Tuesday night, which I did at two am, that if going down was on the one side, was how specific was the candidate in terms of their economic policy. I'm not sure that the Trump side would go down more than the harriside. So I think that you know, both of them are trying to say, is little specifically that so that they don't
offend anyone. I actually think she's been more specific than he has, at least in the last you know, since she's entered the race, and.
You know, so, I don't think.
I think the fact that these are two very different visions for America, definitely, and it's a you know, it's a toss up, definitely injects uncertainty. But I wouldn't put her policy as being.
A principal contributor to that uncertainty.
You talk about her specifics, her campaign is certainly outlined as she has as well in terms of continuation of the Biden policy, which is tackling drug pricing. She's talked about grocery prices, housing affordability. Economists and investors would listen to that and hear that and be concerned about that being a recipe for stagflation. Do you agree?
No, I don't.
I think that there are two elements to her policy. And by the way, I am a Democrat, so take this all with a grain of salt. I think there are two elements to her policy. One, it's a torque the benefits of our society a little bit toward the middle class and those less privileged. And I think her policies on housing, affordability, drug prices, childcare, and the child tax credit all are geared there. And you know there's going to be a massive debate next year about the
extension of the Trump tax cuts. And I think the biggest difference between these two is the position that they will take on that. Whereas Trump is for extending all of them and for in fact expanding some of them on the corporate side, and She is clearly for expanding all of them for those below four hundred thousand dollars
in income and cutting back on the corporate side. She's proposed twenty eight percent rather than twenty one percent, and probably eliminating some of the cuts that are beneficial to the most wealthy in our society. I don't think I think it's a policy focused on a little bit of retorking toward the middle class and below and a growth agenda.
The counter argument that's would be that the Trump taskts did great for the economy. JB. Diamond has made that point a conversation for another time. Ralph Lasson, we have to leave it there, ever, Core Chairman emeritus and Blackrock co founder, we thank you so much for joining the program.